埃森哲 (ACN) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Accenture Q1 fiscal year 2003 fiscal earnings conference call.

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As a reminder, today's call is being recorded.

At this time it's my pleasure to current the conference over to Carol Meyer, Director of Investor Relations.

Please go ahead.

Thank you, operator and thank you, everyone, for joining us today.

With me are Joe Forehand, Accenture's Chairman and Chief Executive Officer and Harry You, our CFO.

We're pleased that all of you are joining us today for our Q1 quarterly earnings teleconference.

By now, I hope that you have had an opportunity to review the news release that we issued earlier this morning.

First, Joe Forehand will provide with you his comments on the current market conditions, our overall results, and key strategic priorities and then Harry will speak to the detailed numbers and we'll save some time at the end for questions.

As a reminder, when we discuss revenues during today's call, we are talking about revenues before reimbursements or net revenues.

Some of the matters we will discuss in this conference call are forward-looking and I would like to advise you that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such risks and uncertainties include, but are not limited to, general economic conditions and those risk factors set forth in today's press release and discussed under the heading "risk factors" in our registration statement with the Securities and Exchange Commission.

Accenture assumes no obligation to update the information presented in this conference call.

So I'd now like to turn the call over to Joe.

Thank you, Carol.

And good morning to all of you.

And thanks very much for joining us.

By now you should have seen our news release and in a few minutes, Harry will discuss the financial details from the first quarter.

But overall we're very pleased with our performance considering the prolonged downturn in the global economy.

We believe our results continue to validate our strategy and reflect our ability to execute and that's the important thing.

No matter what environment we find ourselves in.

What I'd like to do first this morning is to share the highlights of the vision we have for Accenture during this time of change in our industry and of continued uncertainty in the entire global economy.

I want to help you understand the strategic foundation on which we're building the next evolution of Accenture and give you a sense of our approach of managing through this difficult environment.

I think over the last 18 months we've seen many factors have converged to create a business climate that has challenged leaders to draw on all of their experience and expertise.

If you think of the global economic downturn, certainly it's had an impact on almost every enterprise including our own company and certainly most of our clients.

While we do see some signs of improvement, we are not yet ready to call the bottom and are still cautious about the outlook for 2003.

Many issues, including the unsettled world equity markets and continued geopolitical instability have slowed spending for businesses of all types.

The management consulting and technology services industry has undergone enormous change.

We continue to see consolidation with new players emerging, old players disappearing, and even familiar players changing focus.

Certainly, also, regulatory scrutiny has intensified across all markets, putting business practices and management capabilities under the microscope.

And lastly, businesses have to do more with less these days.

Our clients face competitive challenges like never before.

So simply managing in this environment is a challenge to say the least, and managing well is what will set apart the leading companies and ensure they emerge stronger, ready for the upturn.

We believe Accenture's doing what it takes to gain market share and importantly to do it profitably.

Our ability to put our clients and our people first and thus deliver value to our shareholders, I think, sets us apart.

In fact, we believe we're well positioned to enhance our leadership position despite the ongoing turmoil in the global marketplace.

We have the right strategy, the right clients, and the right people.

Regarding our strategy, we have, I think, a very unique approach that begins with a client value proposition.

We sit best at the intersection of business and technology.

Our clients tell us they value our technology platform objectivity for the value it brings them.

Value creation for our clients will continue to be the cornerstone of how we do business.

Regarding our clients, we have developed long-term relationships with the world's leading organizations.

Today 92 of our top 100 clients have been clients for at least 5 years.

We have the depth of experience that allows us to anticipate a client's needs and help them improve their business performance over time.

And regarding our people, we continue to invest in their professional and leadership development.

Our people collaborate with our clients to deliver innovation.

They ensure we are flexible and through their capabilities, we respond quickly and efficiently to the changing needs of our clients and the -- frankly, the changing realities of the global marketplace.

So we believe we have the right value proposition, the right organization, and the right strategy to perform in today's uncertain environment and emerge stronger when the upturn occurs.

Let me share a few highlights from the first quarter to show you what I mean.

Our diluted earnings per share for the quarter, as you know, were 27 cents as compared with 20 cents on a GAAP basis and 25 cents excluding investment write-downs and the related tax effect and in the same quarter last year.

Revenues for the quarter were $2.93 billion, a decrease of 2 percent in US dollars and 4 percent in local currency over the same quarter last year.

Operating income was $429 million, a 4 percent increase over the same quarter last year.

That represents 14.6 percent of net revenues.

Geographically, revenues in Europe, the Middle East and Africa were flat in US dollars and decreased 6 percent in local currency over the same quarter last year.

The market in Europe continues to be soft, especially in Norway, Germany and France.

Although our business overall in Europe has decelerated, we have gained market share.

In the Americas, revenues decreased 3 percent in US dollars and one percent in local currency.

Yet our business in the US does appear to be stabilizing in most vertical industries.

The Asia-Pacific region faces continued economic challenges and increased competition with revenues decreasing 6 percent in US dollars and 8 percent in local currency.

Let's look across our five operating groups.

Communications & High Tech continued its positive growth trend achieving year-on-year revenue growth of 12 percent for the first quarter.

This increase was due to a 100 percent growth in outsourcing, driven in part by continuing revenue streams from large outsourcing deals signed last fiscal year.

Government increased its revenues 7 percent for the quarter over the same period last year due in large part to the growth in North America and Western Europe.

We had a tough quarterly comparison in Q1 in Government last year we had a record 58 percent growth in the same period.

But we do expect double-digit growth to resume in Government.

Financial Services revenues decreased 7 percent for the quarter over the same period last year.

Ongoing challenges in the capital markets industry particularly in the UK as well as in the insurance industry contributed to this decline.

But one bright spot I do want to mention is that the Financial Services business grew revenues in North America 10 percent during our first quarter.

Products had a 9 percent revenue decline for the quarter primarily as a result of declines in our retail industry in Europe and our Health Services industry group in North America.

Finally, revenues in Resources declined 10 percent for the quarter, primarily due to significant economic challenges in a very turbulent environment that chemicals, utilities and energy industries in North America are currently confronting.

And we think this may continue for several quarters.

Let me make a few additional comments on our overall results.

Our business transformation outsourcing business continues to grow especially in BPO, or business process outsourcing, and we achieved a 39 percent revenue growth in outsourcing for the first quarter.

Outsourcing now represents 26 percent of total revenues.

Consulting revenues declined 13 percent in the first quarter over last year.

Although this is a slight improvement over the 15 percent decline we had in the fourth quarter.

We also continue to be very focused on achieving strong cash flow and managing a pristine balance sheet.

We generated $198 million in operating cash flow for the quarter.

We have also told you this fiscal year we would introduce EVA as one of our key operating metrics, and we're pleased that our total EVA increased 6 percent over the first quarter of last year.

Lastly, let me comment on new bookings for the quarter which totaled $2.44 billion.

This is a 27 percent decrease over the same period last year.

However, we're not overly concerned by this decrease and let me explain why.

As we have continued to shift our business to include a greater mix of outsourcing, our sales quarter to quarter have been very lumpy and will continue to do -- to be.

While we didn't close any large outsourcing deals in the first quarter, we now have a little over $2 billion in large outsourcing deals where we have been notified we won and we are in the contracting phase.

We expect to close most of these in Q2.

Also, our pipeline remains strong.

We have over 120 deals that represent over $100 million each.

Yet we continue to experience increased time to close these larger outsourcing deals.

So that's the overall picture of sales in the first quarter.

I want to let you know about a few new wins we announced in December subsequent to the end of the first quarter.

With Neptune Orient Lines, a global transportation and logistics company, we have an eight-year agreement to outsource the NOL group's transaction-based finance functions including accounts payable, accounts receivable and the accounts reconciliation process.

This is our first outsourcing win in the People's Republic of China and the operations will be consolidated in Shanghai.

We also recently announced a 7-year, $200 million agreement to provide Telecom Italia with payroll processing and administrative services.

So although the sales cycle is lengthening, we are still bullish on our ability to build our outsourcing business as these examples illustrate.

Let me close my comments on the first quarter by thanking all of our people for their efforts to work together to help us serve our clients with the highest levels of service and ensure we manage our business effectively.

During December, I traveled to several clients' sites a of and I know many of our people have worked extremely hard even through the holidays to meet deadlines an serve our clients.

Our people have made tremendous sacrifices this past year as we dealt with the economic challenges.

Yet, their resilience and commitment to our business continues to make the difference in our performance.

Let me turn to what we see ahead.

Although our first quarter performance was solid, we continue to be cautious, as you know, in our business outlook as I mentioned earlier.

Our industry is going through significant change and consolidation because of the prolonged global economic downturn, the analysts who follow our industry have lowered their growth rates again and do not expect recovery in the global consulting and systems integration market until the second half of 2003.

Also, pricing continues to be very competitive.

As I mentioned earlier, business process outsourcing is where we see a lot of potential, in fact, BPO continues to benefit from the economic downturn as organizations look to optimize their costs.

We believe we are in the best position to lead this emerging BPO marketplace with our value-based offerings in areas such as finance, learning management, customer contact, transformation, as well as HR.

Let me just give you some indications.

Through Navitair, our airline industry offering, we process more than 300 million airline passenger reservations and transactions for 40 airlines through each year.

Now through our Accenture HR services we provide a broad range of human resources services to more than 700,000 clients, employees and pensioners.

Through Accenture Finance Solutions, we process more than 8 million purchase invoices and one million sales invoices for 25 clients.

We helped one client increase its working capital by $90 million in just four months with the Accenture Finance Solutions.

Through our Customer Contact Transformation offering we direct now 20 call centers across North America, Latin America, the Philippines and India handling more than 100 million inbound customer calls and serving more than 50 million customer accounts on behalf of our clients.

Through Accenture Learning Solutions, we deliver 300,000 days of learning per year.

Providing learning services in nine languages to a quarter of a million users in 93 countries.

And through our recent new business, connection to eBay, we now help 36 clients auction surplus inventory over the internet through eBay.

The point I want to make is that BPO is not a startup business for us.

We've got established capability around the world and we are leveraging this capability to greater scale across each of our operating groups.

Also, as we look ahead, we continue to focus both on our growth agenda as well as effective cost management.

As a result of the actions we took last year to reduce spending and get set for this slower growth environment, our first quarter cost of services shows a significant year-on-year improvement.

We believe these actions have positioned us well and we have completed the first quarter of the fiscal year in a good position.

So with that, let me pause here and I'm going to turn the call over to Harry to give you more detail about our results.

Thank you, Joe.

Q1 was a strong quarter for us.

Diluted earnings per share for the first quarter were 27 cents.

This compares to 20 cents on a GAAP basis and 25 cents excluding investment write-downs and the related tax effect for the same quarter last year.

Revenue for the first quarter was $2.93 billion, a decrease of 2 percent over the same quarter last year, which includes the results of Avanade and Accenture HR services which were first consolidated in the second and third quarters respectively of fiscal year '02.

The quarterly revenues for Avanade were $7 million in the second quarter of fiscal year '02, $17 million in the third quarter of fiscal year '02, $18 million in the fourth quarter of fiscal year '02 and $15 million in the first quarter of fiscal year '03.

The quarterly revenues for Accenture HR services were $30 million in the third quarter of fiscal year '02, $27 million in the fourth quarter of fiscal year '02, and $28 million in the first quarter of fiscal year '03.

Excluding these two acquisitions, net revenues declined 3 percent.

Operating income for the first quarter was $429 million, or 14.6 percent of revenue, which compares to $414 million, or 13.9 percent of revenue, in the same quarter last fiscal year.

As a result of the one-time charge we took last quarter because of restructuring of our real estate, operating expenses for the first quarter were $12 million less than they would have been otherwise.

As we committed to you before, we will continue to give you visibility on the economic benefits of the real estate charge, although I caution that these benefits will decrease over time as the lease obligations expire.

On the other hand, we did incur severance expenses of $36 million in the quarter, which compares to $93 million of severance in the fourth quarter and $65 million in the first quarter of last year.

Finally, we were pleased to fully accrue variable compensation in an amount exactly in accordance with our management plan.

This is in pleasant contrast to Q3 and Q4, where we reversed annual bonus and quarterly variable compensation accruals.

Income before minority interests total $269 million, compared to $200 million on a GAAP basis, or $258 million excluding investment write-downs for the same quarter last year.

As you may have seen in our press release, we have decided to provide you, our public partners and shareholders, with calculations for core earnings as formulated by Standard & Poor's.

The core earnings calculations are very close to how we manage our internal P&L to drive our business.

We have also proactively taken the step as you will see in our 10-Q, which will be filed early next week, of disclosing the full EPS impact of expensing options in our P&L in the quarter.

We will wait for various accounting and regulatory bodies to make their determinations on the options accounting issue, but in the interim, we wanted to provide you more visibility to the economic earnings of our business and, two, as I said before, the way in which we actually manage our business.

By fiscal year '06, with the full vesting of options granted before our initial public offering, there will be much less of a gap between Accenture's GAAP earnings and core earnings.

Although we continue to experience pricing pressure from weaker struggling competitors, we continue to be effective in reducing our operational expenses.

In particular, our costs of services expenses decreased $32 million over the same quarter last year, with reduced consulting head count, primarily at the executive levels, in markets where both supply and demand and skill levels were imbalanced.

SG&A decreased $42 million, or 90 basis points, to 24.8 percent of revenue primarily due to reductions from cost management initiatives and lower bad debt expense as compared to the same quarter last year.

I am pleased that our cost comparisons were favorable especially because of the fact that while there were $18 million in unforeseen expenses last year because of the World Trade Center tragedy, we had $199 million in unbudgeted cost reductions in Q1 of last year as our employees dramatically rallies to cut our deferred cost in what was then a very uncertain and unsettled global business environment.

In summary, we have made solid progress on our cost reduction efforts, although there is much work to go and more improvement we can make.

We have reduced payroll expenses at a $600 million annualized rate.

Nonpayroll outsourcing expenses have increased with our growing outsourcing revenues and have offset 80 percent of the payroll savings.

We are hoping in the second half of the year to achieve reductions in sales and marketing expenses with our selling effectiveness program which was initiated as the fiscal year began and with further improvements in G&A and other cost items targeted by our operational effectiveness program.

Finally, we have implemented a program to increase operating margins on our existing portfolio of outsourcing contracts through various productivity and cost reduction programs.

Our outsourcing business including business transformation outsourcing grew at 39 percent for the quarter primarily due to strong outsourcing growth in the Communications & High Tech, Government and Resources operating groups.

Consulting in systems integration declined by 13 percent as all five of our operating groups experienced a decline in consulting revenues over the first quarter of last year.

We are heartened, however, that we now have one quarter under our belt where year-over-year consulting growth is no longer continuing to accelerate its rate of decline.

Impressively, while our application management outsourcing business grew at 14 percent and our modest amount of infrastructure outsourcing business was flat, our business process outsourcing business grew at over 200 percent year-over-year in the first quarter.

Our Communications & High Tech operating group grew 12 percent in the first quarter, primarily due to 100 percent growth in outsourcing contracts over the same quarter last year.

Government grew 7 percent driven by growth in North America and Western Europe.

As Joe mentioned earlier, Government had a very difficult year-over-year comparison with some one-time value-based payments that occurred in the first quarter of last year.

Our Government operating group is confident in growing in double digits the remainder of this fiscal year.

Financial Services, Products and Resources declined by 7 percent, 9 percent and 10 percent respectively over the same quarter last year.

Financial Services has now shown two quarters of smaller deterioration of its results.

Revenue growth in Europe was flat in US dollars and declined 6 percent in local currency.

European revenues were primarily impacted by year-on-year revenue declines in US dollars of 9 percent in Germany and 9 percent in France and 2 percent in the Netherlands.

Notably, our German business decline is less than the 17 percent decline in the fourth quarter and the 25 percent decline in the third quarter.

Our UK, Spanish and Italian partners, however, grew their businesses 8 percent, 6 percent and 4 percent respectively in US dollar terms during the first quarter of this fiscal year.

The Americas declined 3 percent in US dollars and one percent in local currency.

The decline in the US is now at 2 percent which is an improvement over the fourth quarter decline of 4 percent and the first half of last fiscal year where the US declined by 7 percent.

Asia-Pacific declined by 6 percent in US dollars and 8 percent in local currency.

This is an improvement over the 16 percent decline in the fourth quarter and the 8 percent decline in the second and third quarters.

Most of the Asia-Pacific markets continue to experience increased competitive pressures and adverse economic conditions primarily in Australia and Singapore, while Japan continued to report growth at 7 percent over last year, which is a further improvement over the fourth quarter growth of 3 percent.

Chargeability continues to be in the high 70s, increasing 30 basis points over last quarter with improvements over last quarter in Germany, Japan and Latin America.

New bookings in the quarter were 2.4 billion, representing a 27 percent decline over the first quarter of last year.

Sluggish in both consulting and outsourcing.

As Joe described earlier, we believe we are on track on our annual forecasts for new bookings as well as for revenues and earnings, as we have been awarded significant volumes of business that are now in contracting phase.

Furthermore, we have been benefiting this fiscal year from a modest resurgence of small project work which is what you might expect from a very slowly improving global economy.

This is a necessary but not a sufficient condition to calling a bottom.

As an example, December unaudited net revenues were flat year-over-year.

Finally, while the bookings numbers which all of us focus on is important, it does not fully capture the impact of outsourcing relationships where the client consistently utilized variable resources above legally contracted minimums, nor does it capture client relationships where we have the legally binding agreement but where work is released in phases.

Our cash flow and credit ratios continue to be strong with return on invested capital of 71 percent for the quarter.

As I commented in October, this was our first quarter of utilizing EVA metrics through the organization.

Our EVA tops 11 percent of net revenues this quarter a growth of 6 percent over the same quarter last year.

Joe and I are delighted that operating cash flow for the quarter was $198 million primarily driven from strong income for the quarter, tax refunds and collections and related parties, offset by working capital uses and decreases in accounts payable and accrued payroll balances.

This compares quite favorably to a cash outflow of $197 million in the first quarter of last fiscal year.

Our unbilled services, client receivables and deferred revenues increased $205 million which is typical in the first quarter of our fiscal year due to increased revenue production and increased client financing activities.

In December, to reassure you, our unbilled services balance decreased $145 million due to less revenue production which is typical for the month of December as a result of the holidays and deferred revenue balances actually increased $78 million at the end of December.

Free cash flow for the quarter, net of $19 million in capital expenditures, was $179 million.

While we continue to be frugal in PP&E expenditures and the use of capital for transformational outsourcing, capital spending should return to more normal levels in future quarters as we plan to invest in delivery center facilities in India, China and the Philippines, as well as to reinvigorate spending for PCs and other technology equipment.

Just as we continue to target $1.05 earnings per share, we continue to target $1 billion in free cash flow.

Let me comment on a change we have made to our DSO metric and a corresponding change you will see on our balance sheet when we file our 10-Q next week.

This quarter, we have separated noncurrent unbilled services from other noncurrent assets which represent the noncurrent portion of our client financing arrangements.

In order to clarify the impact of customer financing, we are now including noncurrent unbilled services as a component of the DSO calculation.

At November 30, 2002, noncurrent unbilled services totaled $131 million and at August 31, 2002, noncurrent unbilled services totaled $106 million.

On a comparable restated basis, DSOs totaled 50 days for the quarter, still well ahead of virtually all our competitors.

Excluding these facts of noncurrent customer financing, DSOs totaled 46 days and were flat to August DSOs.

More important, we believe that this change highlights the fact that only $131 million of longer-term capital is being used for outsourcing relationships.

Our total noninvestment grade inventory receivables balance from our top 200 clients totaled $98 million at November 30, 2002, up slightly from $63 million at August 31.

Of these receivables, only $39 million are over one month in age.

We continue to be diligent in monitoring our customers' credit quality and do not see an increase in risk of our receivables portfolio.

As Joe mentioned, our balance sheet grows even stronger with approximately $1.5 billion in cash, cash equivalents and restricted cash reflecting the outstanding cash flow performance of the first quarter.

Our share employee compensation trust, repurchased four million shares for approximately $65 million during the first quarter for new generations of Accenture partners.

Debt totaled $62 million, a decrease of $5 million from August 31.

For the quarter, the weighted average diluted shares outstanding is 1billion 1 million shares compared to 1 billion 14 million shares the year prior and 1 billion 6 million shares at August 31, reflecting our commitment to our public shareholders and partners not to be significantly diluted if our financial performance does not warrant it.

Our current head count stands at approximately 75,900, of which 66,700 are billable and 9,200 are support personnel.

The billable head count breaks down across our different workforces as follows: Consulting and Solutions head count is 49,000, and Outsourcing head count is 17,700.

Let me give you some other important updates on our business and financials.

In November, we closed the sale of our substantial portion of our venture and investment portfolio.

As we announced in early August we reached an agreement to sell a 95 percent interest in our venture and investment portfolio to CIBC World Markets, the investment and merchant banking arm of Toronto-based Financial Services Company, CIBC.

Accenture retained a 5 percent stake in the portfolio which is comprised of approximately 80 early and mid-stage technology companies primarily in the software area.

The terms of the transaction were not made public.

Second, as you know, the segmentation rules under EITF-00-21 have recently been finalized, although we are still reviewing them we do not expect to see any material effect on our existing contracts.

Our current plan is to adopt the new rules prospectively and going forward we will structure our deals in full knowledge of EITF 00-21.

Also, I'm very pleased with the execution of our first quarterly partner liquidity opportunity in late November.

For our partners holding limited shares we were able to sell 4.3 million shares in market transactions over a short period.

Our stock price was not affected by this selling activity and in fact, the transactions were executed during a period when our stock price rose from between 2 to 6 percent on a daily basis.

In addition, in December, we have repurchased 7.7 million shares from partners holding (indiscernible) shares because of constraints in our legal and tax structure.

As we have told you many times, we will balance repurchases from partners and employees with repurchases from the public, keeping in mind our longer-term goal of increasing our stock's liquidity but with our paramount objective in mind of maintaining and enhancing balance sheet strength and quality.

In November, our Board of Directors expanded our ability to use the previously authorized 600 million for redemptions and repurchases for employee shares in addition to partner shares over the next several years.

We expect these funds to be used primarily in conjunction with quarterly liquidity opportunities for partners if the markets cannot absorb new stock sales.

We have not begun to utilize the 600 million program as we still have 15 million remaining on our (indiscernible) repurchase authorization.

Another item I want to bring to your attention is the delivery of 17.1 million RSUs, or restricted stock units, to our employees on January 19.

As you will recall, these RSUs were granted to our employees at the time of the IPO, with a 50 percent delivery in January of '03 and the remaining 50 percent scheduled for delivery in July of '04.

We hope to be able to soon offer employees who receive these RSUs, shares, the opportunities to sell these shares back to us at market price free of brokerage commissions.

On January 19th, 17.1 million shares become available for delivery to employees.

Of this amount, 5 million will be withheld for taxes under net share delivery; that is, we Accenture, effectively withhold the shares and send cash to the taxing authorities making this effectively a buyback of these five million shares and 9.7 million shares will be delivered to active employees and will be subject to the buyback program.

Please keep in mind, however, that if our employees' stock purchase program is a guide, our employees are currently holding more than 70 percent of their employee stock purchase program shares which they have bought through salary reductions in two tronches after the IPO.

Our employees are bullish on Accenture as long term shareholders.

As we mentioned in our press release we continue to target a $1.05 earnings per share for the fiscal year and zero to 2 percent revenue growth.

As we progress through our fiscal year, we have correspondingly greater confidence buttressed by the cost savings which I detailed earlier.

While winning new profitable business continues to be challenging, we have no shortage of value led propositions to offer our clients.

There is no doubt, however, that the next three to six months will be important for us to continue to increase our business backlog.

We are looking to all five of our operating groups to deliver impressive wins in this new year.

The worst-case scenario of 91 cents is becoming more remote as the global economy appears not to be deteriorating further and with pricing pressures in our industry not markedly worsening at this time.

There is still, however, a high amount of geopolitical uncertainty which is, as Joe described, still having an impact on business investment.

It is hard to quantify but now that we are one-third of the way through our fiscal year, the worst-case scenario is probably slowly rising above 91 cents.

For our second quarter with our EPS range of 21 to 25 cents, and with our revenue growth range of minus one to minus six percent, we want to demonstrate not only our caution with the inherent volatility in the geopolitical and economic environment, but also the impact of the volatility inherent in our second quarter which is fundamentally less predictable with the holidays.

Rest assured, all 75,900 employees of Accenture are relentlessly working to deliver the best results possible.

There isn't a finer group of people in the world to serve a client and to deliver business and financial results that will outpace the competition and the broader market, as well.

Operator, can you please open it up for questions?

Certainly.

And again, ladies and gentlemen, if you wish to ask a question, please press the one on your touch-tone phone.

To remove yourself from queue, please press the pound key.

Our first question comes from Adam Fritche with UBS Warburg.

Please go ahead.

Thanks, guys.

Good morning.

Harry, I wanted to ask you about the cost cuts.

You spoke a little bit about that, where are you now.

How much is left for the foreseeable future?

And then can they continue in '04 if revenue should remain in that flatish range?

Well, Adam, we have continued to drive forward efficiencies.

I think certainly in our SG&A area, that's down at 24.8 percent.

We are doing some longer-term study in terms of how that can be reduced further.

So that is certainly potential for '04.

Furthermore, as I described, and what's very exciting is we gain more and more critical mass in outsourcing, we feel we can drive efficiencies and productivity in that area.

So I think as we look out, although we don't have detailed plans yet at this point, for '04, '05 and perhaps beyond, we feel that there is good potential for operating leverage at Accenture.

Okay.

I want to switch gears a little bit to some software companies.

Are you seeing any of the major players out there scaling down or building up their services organization, and have you seen any increase or decrease in revenues as a result of them selling their products?

Adam, this is Joe.

I think the -- we haven't seen any significant change say from the last 12 months in terms of software companies scaling up or down services, their services component.

You know, I think most of the major players are quality players in the software marketplace, want to have enough services to ensure the quality of their product and support and turn to people like us for the broader larger scale change in integration activities.

So I don't think in terms of what we see, relative to the amount of volume related to software implementation and again, keep in mind, that's still probably 25 percent of our business or less that we would see any significant volumes up or down from the last 12 months as to our business around the major players.

Perhaps with, you know, the broader exception of just a relative amount of work we have done on the Microsoft platform with our lines with them.

Okay.

I think, Adam, I'd also like to add, we continue to do what we can increase and improve the power of our channel.

And I think in the end as one of the largest channels of software players, they are incented to work with us and expand their relationship with us.

Okay.

Just hitting on offshore for a second, how many people do you currently have the -- in the lower cost regions, like Canada, Spain and India in total?

And then if you could get into India specifically, how many people do you have there now, and what kind of numbers should we be expecting at the end of calendar '03 and '04?

Really look in total where we have the lower costs locations, it would largely be in India, Manila, Spain and China.

We just opened in China.

That -- those would total in the range of a little over 4,000 across those locations.

And that's excluding -- we have about 6500 in total in what we call the solutions workforce but about a little over 4,000 are in those locations.

And then in India, we have right at somewhere between 6 and 700 at this time.

And what should we expect at the end of this year and at the end of next year?

Well, Adam, as we mentioned at our analysts' meeting, we are hoping for a doubling during the fiscal year.

We have been told by our -- by Greg Parkmeyer , who runs that area and Jose Louis Manzanarez, who spoke at our conference that we're on pace for that.

And I think most important and, you know, impressively to me, we are now cost-comparable in terms of our Indian operations to the Indian firms.

So that obviously gives us the utmost flexibility in terms of how we can attack business.

Okay, great.

Last question, housekeeping.

Bookings, can you give us the split between outsourcing and consulting for the quarter?

Yeah.

Our consulting bookings were down 32 percent, and outsourcing bookings were 9 percent.

So I think you can work through the numbers that way.

It was 73 percent consulting and 27 percent outsourcing in terms of the split of the 2.44 billion.

Great.

Thanks, guys.

Thank you.

And our next question then comes from David Togate with Morgan Stanley.

Please go ahead.

Thank you.

Can you shed some additional light into the outsourcing pipeline?

You know, which vertical industries, geographies, service lines, do you see the best opportunities?

And which areas might be weaker?

Yeah, David.

This is Joe.

I think if you look at the total pipeline, as I said, we have about 120 opportunities that we put in the over 100 million dollar range.

That is split roughly about 60 percent of that is BPO, the rest being largely application management and IT.

So that's about 60/40 in total.

If you look within the 60 percent BPO, there is a lot of that -- and I don't have the numbers exactly, but there is a lot of that that's tilted toward Accenture HR, Accenture Finance and Customer Contact Transformation is where a lot of that is.

And I think if you look across the operating groups, interestingly, it's a reasonable balance across the -- if you look at the pipeline, it's a reasonable balance across all the operating groups.

And in the pipeline, CHT inches to have a good pipeline.

Government is building a much bigger pipeline.

And Financial Services, I think, down just slightly.

But it's pretty balanced across the operate groups.

I think, David, in terms of near-term announcements that we're expecting, I think, you know, within that balance which Joe described, which I agree with, I think we would guess we would be more likely to see announcements in the CHT, Government and Resources area in the nearer term.

Just a quick follow-up.

The Resources group, you know, has turned down the last couple of quarters.

Once you get through some of the weakness in utilities, is that a business that can get back to double-digit revenue growth, in your opinion?

I think so.

I think if you look at what's happened in the Resources area, if you look at -- it's kind of a rolling wave.

If you look at what happened with Financial Services, Capital Markets and Telecom a year ago, you know, if you look at particularly the US, what's happened to the utilities industry within the overall de reg things and things that's happened there has really been a real challenge.

If you look at the oil companies, there is a lot of tightening there.

You know, more of it has been in the US than Europe.

Europe is still doing pretty well in our Resources.

And so I certainly think there's still a lot of opportunity in Resources particularly in outsourcing.

Okay.

Thank you.

Thanks.

And we have a question then from Greg Gould with Goldman Sachs.

Please go ahead.

Thanks.

Harry, could you handicap the full year of fiscal 2003 revenue growth target of zero to 2 percent?

Uhm, are you a little bit more confident with that target now versus three months ago, or -- because the bookings are a little bit lighter, uhm, does that make you a little bit more nervous?

I think, Greg, we're about where we were three months ago.

You know, I think the first quarter was ahead of plan.

December was a little bit, you know, better -- a tiny, tiny bit better than expected.

And so I think, you know, because of that, you know, we're tracking, uhm, to where we want to be.

Okay.

And you had mentioned earlier that it seemed like there's a little bit more consistency in the consulting bookings than in the past couple of years.

Can you elaborate on that?

What's happening with IT, with spending patterns from the customers?

Well, I think as I mentioned what we're seeing is, you know, we'll have to wait and see how the coming months unfold. ut, you know, we have seen some smaller projects come through at the end of the year.

You know, don't know whether that's because it was the end of the year and, you know, with some modest amount of budget flushing or because it was -- because we're seeing, you know, slow improvement in certain sectors of certain regions.

I think, you know, from what I described, and we try to give you all of the salient or material facts that we consider, I think hopefully you got the picture, there are sort of numerous small positive indicators we're seeing across certain geographies in terms of places turning up or industry verticals improving.

At the same time, there are other signals that are somewhat negative.

And I think on balance, at least we're seeing some movement in areas that, you know, we thought we had difficulty in that are positive, as Joe mentioned, whether it was Financial Services, whether it's Germany, uhm, you know, areas that, you know, we thought might have taken longer to recover, certainly CHT, our partners have done an outstanding job to sort of be well ahead of anyone else in recovery.

But, you know, at the same time, there have been other sectors that have been, you know, what you might expect affected by trends in their sector.

As Joe mentioned, the utilities -- I mean, and when you look at the S&P utilities index last year it actually underperformed even the S&P telecom index.

So there's a lot of structural change and impact that affected the stocks of utilities in the US last year and that certainly hurt our business as well as all the turmoil in the energy trading business.

So...

I think it's actually, Greg, a bit like the overall stock market.

There's a lot of rotation sector to sector but, you know, we do see some of, you know, what we would call our technical indicators that, you know, make us feel like at least things are, you know, on the margin, you know, stabilizing rather than worsening.

Okay.

Greg, this is Joe.

I'll give you just an anecdotal commentary.

I think if you look at at least in my travels, this is very qualitative.

I think over the last year, many, many companies have had to focus on what I call problem avoidance.

How do you manage excess debt?

How do you deal with governance issues?

How do you deal with your cost baseline?

You know, we're starting to see some discussions now of executives starting to talk more around market growth, top-line growth, and at least that's a little more positive, but it's all anecdotal.

It's yet to be seen whether we start to see that turn into more risk-taking, more business investment.

Okay.

And one last question the to give us a sense for bookings for the current February quarter, if most -- I think you mentioned, Harry that most of that 2 billion could close in this quarter?

Should we expect or hope for bookings somewhere in the 4 to $5 billion range for the quarter?

Well, Greg, I think when you look at our historical pattern of consulting bookings, and you add that to, you know, at least 2 billion in outsourcing bookings, as Joe described, that that range is, you know, a good inference.

Okay.

Thank you.

Thanks.

And we do have a question, then, from Moesha Katri's line with S.G. Cowen.

Please go ahead.

Good morning.

Thanks for taking my question.

Harry, can you talk a little bit more about your monthly progression in bookings?

Looking at starting at September throughout November, uhm, and then can we get a feel on the demand trends during December and then so far in January, what are you seeing out there?

And then did the November bookings include any of the smaller to midsized consulting deals that you won during the quarter?

Thanks.

The answer to the last question is yes, to the extent that we track them, but there are some pieces of add-on business and as I mentioned, some increased outsourcing activity that wouldn't have been captured in the bookings number, which we suspect helped us outperform our revenue forecasts in Q1.

I think in terms of how the bookings came in, they were generally pretty much [ratably] through the three months of the quarter.

I think our challenge that we keep working against the headwind on is just getting through the final contractual issues with clients and we are hoping to have them break -- we are hoping to have some breakthroughs here.

Once again, as both Joe and I mentioned to reassure everyone, you know, we are looking at business that we have been awarded, and we're working on the final contracting.

So as all of you know, the bigger deals have been tougher to close recently.

We have also faced that phenomenon.

But as Joe mentioned, in no way are we overly concerned relative to our forecasts.

Harry, how about during the month of December and so far in January?

Have you seen any change compared to the November quarter?

Well, I think Moesha we continue to work away.

December is typically a quieter month on larger bookings because everyone heads out for the holidays.

So, you know, clearly the next two, three, four months and, you know, as you know, for our, you know, European business in particular, the beginning of the year is an important area.

You mentioned last quarter you have actually quantified that numbers -- numbers of days to close deals.

Is there -- can you give us a feel on where that number is or was for the November quarter?

For the November quarter it increased.

We actually had some statistical skewing because we had one deal in the Government area which in the system it took over three years to close.

So it distorts the numbers.

If you excluded that deal, we do get, you know, a reversal of the trend we had, a favorable trend over the last couple quarters and it's an obvious point with the bookings being lower, of the days to close sort of increasing.

They are not at the very highest levels we have seen in the last six quarters.

But they have gone up significantly.

Thanks a lot.

Thanks.

And we do have a question, then, from Dirk Gossey's line with J.P. Morgan.

Please go ahead.

Good morning.

I guess given the current run rate of the outsourcing business around 3 billion you still have, you know, several hundred million to fill an order to get to the -- to hit the 30 percent plus target for fiscal year.

I guess, really two questions here.

Is that still a reasonable target in your mind?

And, two can you give us kind of a rough feel of how much that delta has to be filled through the new business activity that you have been talking about versus the expansion of existing relationships?

Dirk, I don't know if I have all of that quantified but I think if you look at -- just as an indicator of our 16 billion in bookings this last year, slightly over half of it was outsourcing.

So you can see that the effect of with that bookings last year puts you on a trajectory of revenue runoff of sales last year where it would skew that an increasing amount relative to the outsourcing business.

So I feel generally comfortable that we're on track to get to the 30 percent level.

Yeah.

Actually, as we've been -- Joe and I have been mentioning publicly, we made the 30 percent commitment at the time of IPO.

We thought it would take 3 or 4 years.

We are going to get there much faster.

We're now, you know, looking at a business that's going to be, you know, much higher than 30 percent in outsourcing and we're working to figure proactively the optimal structure for our business, which is going to be much more focused on the outsourcing area.

But the 30 percent is a very reasonable and valid target for this fiscal year, which is much faster than we anticipated a year and a half ago.

I guess I was thinking in terms of a growth target as -- I think you might be talking about a mix number.

So that's really what I was referring to.

I was referring to the 30 percent mix number.

It stills appears we are on that trajectory by the end of the year.

Maybe just a follow-up.

You signed a number of large deals in the last fiscal year.

Can you give us a sense as to how well those are ramping?

I think you made a comment that you have some cost savings programs related to whether it's those particular deals or others, I'm wonder, now, are these deals performing in line with your expectations?

And where are they in terms of the ramp from kind of the startup processes to kind of reaching what you expect to be kind of the annualized run rate of some of those larger deals?

I think we are getting to the point now where the larger deals that we signed last year are at their full run rate or within a quarter of being at their full run rate.

What I referred to in terms of the cost improvement programs is more on the older portfolio of outsourcing contracts which we signed, although once, you know, we get a contract up and running, we'll sort of lump it in and figure out how we can rationalize costs further but I think what Joe and I and our capital committee have been very pleased on is, so far, on our large deals, we have been performing to plan or better than plan.

And --

And meeting the service level commitments to our clients.

So overall, and I think it shows up when we have talked to you about the issues relative to revenue recognition and percentage of completion, you know, when you are meeting your targets, the accounting issues are much, much easier and in fact, and I think it's showing up in the numbers in Q1 being better.

The outsourcing numbers are better than planned, and that's how we're doing better in revenue and better on margin.

Okay.

Well, it's getting late here so I'll stop there and say good luck on the new year here.

Thank you, Dirk.

Thanks.

And we do have a question, then, from Ed Caso with Wachovia .

Please go ahead.

Good morning.

Thank you.

I had a question on the pricing of the new outsourcing deals.

You mentioned that the to close had extended and I was curious if that related to the clients trying to pressure pricing and therefore your margins or whether it's more of a indecision for other reasons.

No, not at all, Ed.

I think the deals are complex.

Every time we're going through one of these deals, it's for the first time for the client.

Sometimes, very candidly, in a geography or BPO area, it could be the first time for us.

There are lots of issues to work through.

And then, as Joe described, the overlay of all the economic uncertainty, and uncertainties in governance create a situation, where, you know, as you can imagine, sort of dotting the contractual I's and crossing some of the contractual T's just takes longer.

So, we're very comfortable with all the pricing and margin assumptions.

We offer a very unique proposition to clients.

Price is generally not an issue whatsoever.

And so it's just an issue of working through contingencies and often, I might add, that given the uncertainty in the environment relative to customer credit, and other contingencies.

Whether it may be change of control, that we may foresee relative to the client, you know, we're also asking for extra protections and provisions that also at times is a negotiation.

As Joe and I have mentioned many a time, uhm, you know, in this environment, as much as we are eager for revenues, the last thing that we, at Accenture, want to do is plunge headlong into these deals for the sake of getting revenue and not think through exactly how to structure the deal so that all of you, as shareholders, are adequately protected.

As well as making sure that we can deliver the best possible service for a client.

So, all that uncertainty, uhm, adds up and it's really hard to quantify Ed, but I think, when you think about it, you can understand how things might progress a little more slowly than one would like.

Great.

My other question relates to, you've done a terrific job controlling expenses here in a tough environment.

When the economy does turn up how much, uhm, deferred costs are gonna come back?

I hear you say you held back on CAP-X and so forth.

And I guess, the end point of the question is, what do you think your structural operating margin can be in a more normal, positive economic environment?

Well, Ed, we're driving to, as Joe and I said since the time of IPO, at least for the first three years after IPO, we want to improve our operating margin, and Joe has had us mobilized for the last six months on a study on how we can improve longer term operating margins.

So that's something that we're well on track on identifying how we can improve on driving margins further.

There are a lot of unknowns in terms of our industry environment and competitive pressures.

But, you know, we like to apply our own advice and medicine that we give to our clients, to ourselves, and look pretty vigorously at how we can improve things.

I think there will be longer-term operating leverage that will benefit Accenture shareholders.

But the one caveat I would give, is that, you know, I think the CAP-X amounts as I mentioned, you know, will have to come back normal levels later in the fiscal year but one thing that's also important to remember, is that our people have made a large amount of sacrifice.

And I think, once we achieve our plan for this year, what I have indicated to many of you and to our investors directly, is we do need to take care of our people because our people are the ultimate source of value of our franchise and the value of this company.

So that's something this you should factor in.

Thank you.

Thanks.

And we do have a question, then, from Pat Burton with Salomon Smith Barney.

Please go ahead.

Hi.

Congratulations on the quarter in a tough environment.

Two-part question.

First has to do with the company's acquisition strategy with the billion and 1/2 in cash and the great balance sheet.

Is anything changing there now that you're in a new year as a public company, year-plus?

And the second is for the entire year do you expect bookings to be flat or slightly up?

Thanks.

Pat, this is Joe.

I think in terms of acquisitions, you know, we are looking at that and continue to look at it.

We do see the industry consolidating.

You know, we have to look at acquisitions, I think, very soberly and the fact that most of them don't achieve the benefits.

And so I don't, uhm, while on the one hand, uhm, we have to continue to be agressive in terms of ensuring that we have sufficient size and scale of the offerings we have to be competitive across the stack of services we provide, we don't have anything under way currently that's immediately planned.

I think if you look at where those might be, if we did them, it would probably be in businesses that are around BPO.

In terms of the total bookings, it's a little early in the year to declare, but our target is to beat or exceed our 16 billion from last year.

Okay.

Thank you very much.

I think, operator, we need to end the questions there and Mr. Forehand has a few closing remarks.

Okay.

Just to close, let me thank all of you for your continued confidence in Accenture.

As you have heard, although we're cautious about our business outlook, given the uncertainties that we all see in the economic and geopolitical environment, I think it's just important to notice that we are performing well and we have delivered.

And we are very optimistic about our long-term future.

So with that, thanks again.

I wish all of you a very Happy New Year and thanks for joining us.

Thank you.

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