埃森哲 (ACN) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Accenture Q2 fiscal year 2004 conference call. (OPERATOR INSTRUCTIONS).

Also as a reminder, today's call is being recorded.

At this time I would like to turn the conference over to the Managing Partner of Investor Relations, Ms. Carol Meyer.

Please go ahead.

Thanks everyone for joining us today.

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

And we're pleased that all of you are joining us for our FY '04 second quarter earnings announcement.

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

On today's call, Joe will begin by providing his comments, and then Harry You will speak to the detailed numbers.

And in order to allow for time for additional questions, we expect the conference call will last an extra 15 minutes today.

As a reminder, when we discuss revenues during today's call we're talking about revenues before reimbursement for net revenues.

And some of the matters we will discuss on the 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 factors set forth in today's press release and discussed under the Risk Factors portion of the business section of our annual report on Form 10-K recently filed with the SEC.

Accenture assumes no obligations to update the information presented on this call, but in our call today our speakers will reference certain non-GAAP financial measures which we believe provide useful information for investors.

We will provide reconciliations of those measures to GAAP, and you can find those reconciliations on our Investor Relations webpage at Accenture.com.

So now let me turn the call over to Joe.

Thank you, Carol, and good morning to all of you.

Thanks for joining us.

In addition to today's earnings results we made an important leadership announcement this morning that I want to explain.

I will be handing over the reins to a new CEO on September 1, while I retain my position as Chairman.

First, I very thrilled to continue to contribute to the growth of Accenture as Chairman, and I'll come back to this shortly.

Let me share some context behind my decision and the process for selecting our new CEO.

First I can tell you I have truly enjoyed and have had great fun leading Accenture through a period of such enormous change.

I will be completing my fifth year as CEO this year.

I'm proud of what we have accomplished and the fact that we strengthened our leadership position during the most difficult economic conditions our industry has seen.

Our success is due to the 90,000 women and men who work for Accenture.

Their talent and continued commitments to our clients and our business is inspiring to me.

Now I believe we are at a point in our transformation and growth where it is time to transition to my successor who lead Accenture through the next phase of our evolution.

Our business is successful because we have continuously changed it, responding to changing client needs, and that also means refreshing leadership at the top when we are in a position of strength.

Our business strategy is sound, and we have achieved the transformation and objectives we set out to achieve when I became CEO in 1999.

Our market is showing signs of improvement, and we continue to attract the very best people to deliver value to our clients.

It will be my pleasure as Chairman to help my successor guide Accenture into the future.

In addition to chairing the board and providing support to my successor, I will continue to develop relationships with our clients, work with our client teams, our business partners, as well as continue to represent Accenture with business and government leaders.

I am really looking forward to this new role and the opportunity to continue to stay active in our Company.

The board and I both believe that having a Chairman who is active in the marketplace and a CEO driving our striving our strategy and operations is a powerful leadership structure for us at this time.

It will enhance our ability to represent Accenture to our clients, to our industry and to our global communities.

Now in terms of processes you read in the news release, our Board of Directors has been actively involved in succession planning for the last two years, and has identified a preferred candidate to succeed me as CEO.

And that person is an internal candidate.

However, in keeping with our process for selecting a new CEO, the board is seeking additional input from our 2,300 partners.

This is part of the agreement the Company and our partners made in 2001 in connection with our IPO.

Our partners are entitled to provide input to the CEO selection process, should the board select a new CEO prior to July 2005.

I know this is a bit unique, but the board has the final authority to name a new CEO and is expected to announce its final decision by mid-April.

We will complete the transition to the new CEO and to my new role as Chairman over the summer.

And I can assure you it will be a smooth transition for all of our stakeholders.

With that let me turn now to the results of the second quarter.

I will provide a high-level overview of our results, and I'll hand to Harry for the details.

By now you have seen our news release with the results of the second quarter.

We're pleased with our results, which reflect a pickup in our consulting business and the continued growth of our outsourcing business.

We're also proud of the continued strength in our balance sheet with a significant increase in cash during the quarter based on very strong free cash flow.

Revenues grew 17 percent in U.S. dollars and 8 percent in local currency over the second quarter of last year.

In addition we are especially pleased that each of our five operating groups achieved double-digit revenue growth in U.S. dollars year-over-year for the first time since we became a public Company.

We also had momentum at the end of the quarter with very strong revenue growth in the month of February.

New bookings in the second quarter reached an all-time record of $7.65 billion, which is a 61 percent increase over this time last year.

Outsourcing new bookings were $4.76 billion and consulting new bookings were $2.89 billion, which is a great sign and exceeded our goals.

In terms of new business we had five wins over $500 million each and another nine in excess of $50 million.

Harry is going to cover the financial details of the quarter.

But I wanted to point out that we had a strong earnings quarter and were able to accrue $64 million of variable compensation expense.

I want to take this opportunity to thank all of our people around the world for their outstanding contribution to these results.

Looking ahead we continue to position our business for economic recovery with a strategy that we are extremely excited about, and one that is winning in the marketplace.

This is most evident by our record new bookings, very solid revenue growth, and the take up of our high-performance delivered positioning in the marketplace.

So let me remind you why we believe high-performance delivered is so important to our future success.

It helps us engage with more executives at our clients, and increase the range of issues we can help them address.

It helps us reach a broader set of clients.

It increased our focus on business outcomes, helping clients perform themselves at the highest level.

And we believe it raises the bar in our industry, taking Accenture to a new differentiated position.

As you know, we have been focusing our capabilities, our image activities, our branding, our training around our strategy so that everyone in our Company is focused on enabling high-performance for our clients.

Our advertising and integrated marketing program has had a very strong impact in just a brief period of time.

Based on recent awareness studies with senior executives we found one out of every two senior executives surveyed globally associate Accenture now with delivering innovation to help clients become high-performance businesses.

This jumps to two out of every three executives in the U.S.

We're certainly pleased with these results and will continue to drive our strategy and execute our three growth platforms as we expand the market around high-performance.

In summary, we believe our results this quarter indicate a positive trajectory for our business.

We have been focused on based on gaining more operating leverage, and our efforts are paying off.

With that let me hand it to Harry.

Thank you, Joe.

We're very pleased to have sprinted ahead in our second quarter, ahead of our internal plans and schedules.

I'm sure you'll agree we now have a critical mass of positive data points about our business.

We need to continue this recovery to propel Accenture forward.

Our net revenue for the second quarter was 3.3 billion, an increase of 17 percent in U.S. dollars and 8 percent in local currency compared with the second quarter of last year.

All of our operating groups posted a net revenue growth in U.S. dollars and local currency this quarter.

Our Government operating group had net revenues of 468 million, an increase of 29 percent in U.S. dollars and 23 percent in local currency.

Our Communications and High-tech operating group had net revenues of 931 million, an increase of 18 percent in U.S. dollars and 12 percent in local currency.

Our Resources operating group had net revenues of $538 million, an increase of 16 percent in U.S. dollars and 8 percent in local currency.

Our Financial Services operating group had net revenues of $648 million, an increase of 14 percent in U.S. dollars and 4 percent in local currency.

And finally, our Products operating group had net revenues of $715 million, an increase of 11 percent in U.S. dollars and 3 percent in local currency.

Consulting revenues were 2.03 billion, a growth of 4 percent in U.S. dollars, and a decline of 5 percent in local currency compared to the same quarter of last year.

We're pleased that our consulting business continues to make strides on the road to true recovery.

Outsourcing revenues were 1.28 billion in the second quarter, representing growth of 46 percent in U.S. dollars and 37 percent in local currency compared to the second quarter of last year.

In addition, our BPO revenue for the second quarter, which as a reminder includes both consulting and outsourcing revenue, reached 564 million, up 80 percent over the second quarter of fiscal 2003, and up sequentially by 14 percent over the first quarter of fiscal year 2004.

Looking at our three key geographic areas in second quarter, we also saw net revenue growth in both U.S. dollars and local currency across all areas.

Net revenue growth in Europe, Middle East and Africa increased 22 percent in U.S. dollars and 7 percent in local currency for the second quarter, as the U.S. dollar weakened significantly against all major currencies in Europe, most definitely the euro and the British pound.

In the second quarter year, year-on-year net revenue growth in the UK was 14 percent in local currency and 25 percent in U.S. dollars.

Growth in France was 12 percent in local currency and 32 percent in U.S. dollars.

Growth in Spain was 2 percent in local currency and 20 percent in U.S. dollars.

In Italy, however, our net revenue declined 2 percent in local currency, but grew 15 percent in U.S. dollars.

And similarly in Germany, our revenue declined 5 percent in local currency, but grew by 11 percent in U.S. dollars.

In our Asia-Pacific region, net revenues grew by 18 percent in U.S. dollars and 6 percent in local currency, primarily due to Japan which grew 4 percent in local currency and 17 percent in U.S. dollars.

Net revenue in Australia declined 3 percent in local currency, yet grew 25 percent in U.S. dollars.

Our Americas region grew by 12 percent in U.S. dollars and 9 percent in local currency, reflecting the strength of the Canadian dollar and the Brazilian real against the U.S. dollar.

Year-on-year revenue growth in the United States was solid this quarter at 6 percent in U.S. dollars, reflecting the highest growth since the fourth quarter of fiscal 2001.

Also this quarter in our continuing effort to reconfigure our office space we recorded a 107 million pretax restructuring charge as a result of global consolidation of approximately 800,000 square feet of office space, or approximately 9 percent of our global real estate footprint.

This will further reduce our fixed cost base and produce ongoing operating savings.

As you can see in the attachment to our earnings release today, the restructuring charge is reflected on a separate line item above operating income entitled, Restructuring Costs and Reorganization Benefit, on our consolidated income statement.

The charge represents the net present value of the expected cost of abandoning and then subleasing properties in 40 office locations in 14 countries.

We expect a total cost savings of 12 percent in fiscal 2004 -- excuse me, 12 million in fiscal 2004, 6 million in each of the third and fourth quarters, and an additional 30 million of savings in fiscal 2005.

These estimates are based in part on our experience with a similar real estate consolidation expense we recorded in the fourth quarter of fiscal year 2002, where we recorded a charge of $111 million for the abandonment of more than 1 million square feet of space in over 50 office locations in 11 countries.

As a result of the fiscal 2002 consolidation, we achieved cost savings of 31 million in fiscal 2003, and have estimated another 19 million of cost savings in fiscal 2004, approximately $5 million per quarter.

On operating income, operating income for the second quarter was 307 million or 9.3 percent of net revenue compared with 368 million or 13.0 percent of net revenue for the second quarter of last fiscal year.

Excluding the 107 million of restructuring and real estate consolidation charge, operating income for the second quarter would have totaled 415 million, or 12.6 percent of net revenue, a growth of 17 percent when compared with 354 million, or 12.5 percent, of net revenue when adjusted for a 14 million reorganization benefit recorded in the second quarter of last year.

In addition in the second quarter we incurred severance costs of 22 million compared with 24 million in the second quarter of last year, reflecting our ongoing management effort to maintain the proper workforce pyramid to support the business, as well as to manage performance related issues.

Furthermore for the first time in five quarters we accrued a significant amount of variable compensation to the tune of $64 million, or 4 cents a share, in the second quarter which compares to a reversal of 6 million of variable compensation in the same quarter of last year.

Gross profit margin in the second quarter totaled 1.09 billion and represented 33.0 percent of net revenues compared to 35.7 percent of net revenues in the second quarter of last year.

The year-over-year gross margin decline is due to the continued shift in our business mix towards outsourcing, continued but perhaps softening pricing pressures, and increased variable compensation expense when compared to the same quarter last year.

In addition, our consulting gross margins continue to be stable for the fourth consecutive quarter, while our outsourcing gross margins have shown sequential improvement compared with the first quarter of fiscal 2004.

Absent the second quarter severance cost of 18 million and variable compensation of 52 million recorded within our cost of services, consolidated gross margin was 35.1 percent of net revenue compared to 36.4 percent in the same quarter of last fiscal year, absent 24 million of severance cost and a credit of 4 million of variable compensation on the same basis.

This 130 basis point year-on-year decrease in the adjusted gross margin was attributed to mix shift in our business.

Further, this improvement is attributable to stabilization of our consulting margins and the maturing of many of our contracts in the outsourcing portfolio.

Moreover, when comparing second quarter gross margins to first quarter gross margins there was an expected seasonal down tick of approximately 80 basis points due to the sequential decline in the number of network days in the second quarter.

Adding back the 18 million of severance expense and the 52 million of variable compensation expense in the second quarter, relative to the 21 million of severance expense and the 4 million credit of variable compensation in the first quarter, our gross margins in the second quarter increased by approximately 230 basis points on a seasonally adjusted basis.

Also let me update you on the Communications and High-tech contract that carried lower than expected margins in the first quarter of this fiscal year.

They did not have material effect on margins in the second quarter, and should not affect the Company's ability to meet earnings and cash flow targets for this fiscal year.

In Q2 we have seen good recoveries of Q1 cash shortfalls on these contracts.

Our current forecast and analysis indicate that on the whole our outsourcing portfolio is again meeting internal expectation in line with our targets for the fiscal year.

Although it is too early to tell, I hope that Q1 will represent the bottom our outsourcing gross margins, and Q2 of last fiscal year the bottom for our consulting gross margins.

On SG&A we continue to drive further efficiencies.

In the second quarter SG&A was 675 million, or 20.4 percent of net revenue, a 280 basis point decrease compared with the same quarter of last year where SG&A was 656 million, or 23.2 percent of net revenues.

The U.S. dollar increase of 19 million reflects the effects of foreign currency on the fixed portion of our cost structure, as we did experience operational savings primarily in our selling costs, facilities and technology spending, as well as corporate functions.

As we have often said, we manage our businesses' operating margin and one should not infer too much relative to gross margin because of mix shift, nor give too much credit on SG&A due to the same change and split of type of work.

Our effective tax rate for the second quarter of fiscal year 2004 continued at 34.8 percent.

And we expect your annual effective tax rate for the remainder of year to be 34.8 percent.

Diluted earnings per share for the second quarter were 22 cents, including a charge of 7 cents per share associated with the second quarter real estate consolidation charge of 107 -- of 107 million -- excuse me -- on a pre-tax basis.

Diluted earnings per share for the second quarter of fiscal 2003 were 25 cents.

We are pleased to have significant pro forma operating income and EPS growth at levels above our expectations and yours.

Our weighted average diluted shares outstanding for the second quarter were 998 million, compared to 997.8 million for the same period last year, and down from 1.20 billion in the first quarter of fiscal 2004, whereas you may recall we had approximately 23 million of a temporary share increase associated with the issuance of shares in connection with our September 2003 secondary offering.

In addition, let me comment on our S&P quarter earnings performance for the second quarter.

Accenture's core earnings for the second quarter were 202 million, or 20 cents per share compared to 199 million or 20 cents per share for the same quarter last year, a growth of 2 percent due to the 7 cent impact of the real estate restructuring charge, which is not an adjustment to S&P core earnings.

Accenture's core earnings per share of 20 cents compares with the GAAP reported fully diluted earnings per share of 22 cents, primarily reflecting the impact of employee stock options and the employee share purchase plan expense.

Chargeability for the second quarter continued in mid-80s, an increase of approximately 700 basis points over the second quarter of 2003, and flat to the first quarter of 2004.

We continue to see robust chargeability from both the Consulting and Solutions work forces and see solid chargeability performance in most of our geographies.

For the second quarter we achieved an all-time high in new bookings reaching 7.65 billion, with 2.89 billion in Consulting new bookings and 4.76 billion in Outsourcing new bookings.

On a four quarter rolling average as of February 29, 2004, our consulting new bookings were up 17 percent and our outsourcing bookings were up 120 percent when compared to the fourth quarter rolling average ending February 2003.

Geographically in the second quarter our Americas region represented 20 percent of our total new bookings, our European region represented 75 percent, and our Asia-Pacific region represented the remaining 5 percent of the total.

Our new bookings in Europe were strong this quarter due to the two large contracts we signed with National Health Services, which contributed 3.12 billion to our second quarter new bookings, reflecting the final terms of the contract.

Our balance sheet remained strong with cash and cash equivalents totaling 2.85 billion at the end of February, an increase of 524 million from November 30th, 2003 and 521 million from August 31, 2003.

This quarter we invested 305 million of our cash into liquid fixed income securities, which are classified as investments on our balance sheet.

These liquid fixed income securities, mostly CDs, carry minimal risk of loss of principal.

In addition, debt at February 2004 was 52 million, a slight increase from the 50 million at November 2003.

In relation to the November 30th period, our unbilled services and deferred revenue balances of February 29 increased 38 million and 276 million respectively, while client receivables balances decreased 29 million over the same period.

This favorable net movement in client working capital resulted in a decrease of nine days in our day services outstanding, or DSO, metric from November 2003 period, and eight days from the February 2003 period to 40 days.

Factoring out the foreign exchange factors on this movement, our collection on client balances contributed 333 million of cash for the period, a remarkable contribution to our cash balances period.

Our partners working through the finance organization and our business operations group did a truly stunning job last quarter.

We're very pleased with our operating cash flow and free cash flow performance this quarter.

Operating cash flow for the second quarter was 861 million, compared with 414 million in the same quarter of last year, an increase of 447 million.

Free cash flow for the second quarter was 806 million, defined as operating cash flow of 861 million, less property and equipment additions of 55 million, an increase of 453 million over the second quarter of last fiscal year.

We have seen significant cash flow improvement in many areas of our balance sheet, particularly within client receivables, which contributed 110 million in free cash flow improvement this quarter due to increased collection activities, together with client deferred revenue which contributed $130 million in cash flow improvement due to increased client prepayments.

I would like to point out that our advanced billing this quarter were significant, and we expect the level of these billings to be slightly reduced over the next couple of quarters as the related work is performed.

Other contributors to our strong cash flow performance this quarter were an increase in income taxes payable, which resulted in 118 million of additional cash flow over last year, and an increase in other accrued liabilities which drove 77 million of additional cash flow over the same quarter last year.

In addition, capital expenditures decreased 6 million in the second quarter when compared to the same quarter last year due to a modest year-over-year decrease in infrastructure capital spending as we continued to be parsimonious on PP&E expenditures.

On a six-month fiscal year-to-date basis, operating cash flow was 986 million compared to 612 million for the six months ended February 2003.

Free cash for the period, once again defined as operating cash flow less 101 million in property and equipment additions, was 885 million, an increase of 352 million over the same period last year.

Additionally, our credit ratios and returns continue to lead the industry, with return on invested capital of 58 percent, again a number one ranking when compared against the S&P 100.

Return on equity and return on assets are also industry leading at 64 percent and 16 percent respectively, both ranking fifth against the S&P 100 companies.

In addition, our second quarter revenue growth of 17 percent in U.S. dollars ranked 20th against the S&P 100, while our operating earnings per share growth, excluding the restructuring costs and reorganization benefits, ranked 45th against the S&P 100.

Additionally, our EBA metric, adjusted for the reorganization of restructuring benefit, represented 9.2 percent of net revenues for the second quarter compared with 8.9 percent for the same quarter last year.

On headcount, our headcount at February 2004 stood at approximately 90,000, an increase of 18 percent over the second quarter of last year and 5 percent over the November 30th period.

We continue to experience growth in our Services and Solutions work forces.

Approximately 81,600 are billable headcount and 8,400 are support personnel.

Our attrition rate in the second quarter was 14 percent.

Let me talk now about our business momentum as evidenced by the linearity we saw in February, the last month of the quarter.

We continue to be encouraged by the momentum we're seeing in our net revenue production on a month-to-month basis.

On a network day basis we continue to see favorable sequential growth in production as our average net revenue per network day has grown 12 percent over the first quarter of fiscal 2004.

In addition, our volume of chargeable hours per network day for our consulting business continues to gain momentum in the second quarter and has grown 8 percent over the same quarter last year, and is up sequentially by 2 percent over the November 2003 quarter.

In total, our net revenues in the month of February topped 1.2 billion, an increase of 23 percent in U.S. dollars and 14 percent in local currency over February of last year.

For the same period, consulting revenues grew 9 percent in U.S. dollars and 1 percent in local currency.

And outsourcing revenues grew 53 percent in U.S. dollars and 44 percent in local currency.

Needless to say we hope to continue our momentum, especially in consulting of growing in local currency or unit volume.

I also want to provide you with some additional updates.

Concerning our adoption of EITF 00-21 on September 1, 2003, we continue to experience minimal impact so far on new contracts we have signed year-to-date.

For clarification purposes, where revenue recognition is delayed due to 00-21 we will establish an asset on our balance sheet to record certain costs, which will be amortized over time.

And we will recognize the revenue costs and margin as earned through the life of the contract.

In the second quarter the impact has been a reduction to net revenue of 6.8 million, or a .4 of a penny impact on earnings per share, as we have generally been successful in structuring contracts to meet the revenue recognition rule.

I do expect the impact to grow over time as contracts evolve and new ones are added.

While we may be able these in final negotiations to minimize the impact, we expect as we have previously stated, a deferral of 2 to 4 cents per share over the remainder of the year.

We will continue to provide you updates as we finish out the balance of the fiscal year.

Now, let me update you on expectations for the third quarter and the rest of the fiscal year.

We expect net revenues for the third quarter to be in the range of 3.4 to 3.55 billion, which would be 12 percent to 17 percent over the third quarter of last year.

As we have done in the past few quarters, this range reflects the inherent unpredictability of foreign exchange rates.

These growth projections are predicated on around $1.25 to 1 euro exchange rate, plus or minus, although our business has significant exposure outside dollars in euros.

For the third quarter we're comfortable with consensus GAAP earnings of 30 cents per share and with the operating income consensus of 462 million.

For the full fiscal year of fiscal year 2004, we're still targeting new bookings to be the range of 18 to 20 billion, although given new bookings to date and as a number of pending opportunities in our pipeline, there is an increased possibility we could exceed 20 billion in bookings for the fiscal year.

For the fiscal year as a whole, including any future impact of EITF 00-21, we now expect net revenue growth for the full fiscal year to be in a range of 11 to 14 percent.

We also expect our GAAP earnings per share for the fiscal year to come in between $1.13 and $1.15 per share.

The FY '04 earnings per share range on both a GAAP and operating earnings per share basis, adjusted for any future impact of EITF 00-21, should allow us to meet our objective of outperforming our peer group, excluding a couple of outliers because of their soft calendar year '03 performance.

Also on the same basis, we should be in line, if not in excess, of the S&P 500 operating earnings per share growth for calendar year '04 which we estimate at close to 12 percent.

We also anticipate that this earnings per share earnings range will allow us to accrue between 100 to 200 million of variable comp for the year, which is a fraction of the over 7 billion we expect to incur this year in total payroll expenditures.

Our partners are very focused on not letting up, as we continue to put the tough recession of early in this decade further behind us.

We are focused on continuing our business momentum, as we all know that a two-year plus global recession in our industry will not be overcome by a single quarter.

Moreover, while we had limited variable compensation over the past couple of years, we have been able to deliver significant equity based compensation to our employees thanks to our shareholders' continuing support and Accenture's strong business and financial performance.

Our non-partner employees have received equity related benefits, RSU value and in the money option value of over 2 billion since the IPO, representing over 15 percent of payroll per annum, allowing us to deliver a superior financial component to our employee total rewards program.

Finally, we continue to target 15 percent free cash flow growth on a recurring or onetime basis that should yield FY '04 free cash flow respectively of 1.3 or 1.5 billion.

In summary, we couldn't be more pleased with the earlier than expected pickup in our operating leverage and earnings performance.

Before I finish, I would like to make some heartfelt comments that I'm certain are shared by all our Accenture partners and employers, as well as by our external partners and shareholders.

Joe Forehand has guided Accenture brilliantly through one of the most challenging times for our Company and for our industry.

As Chairman and CEO, Joe led us to a successful conclusion in our arbitration process and reorganized our business to make it more customer focused.

He spearheaded our strategic push into business process outsourcing, well ahead of the competition.

And he led Accenture in the transition from a global partnership to corporate form, and through our IPO in 2001.

The repositioning and rebranding of our Company under Joe's guidance is a true success story, and Accenture has quickly become a top brand worldwide.

Through it all Joe has maintained an intense commitment to Accenture's people that, in particular, help mitigate the impact of difficult economic times on our workforce.

In financial terms, Joe's leadership has enabled Accenture to perform without fear.

Since the downturn in 2000, we have grown earnings per share at over 15 percent per annum, and free cash flow since becoming public at 37 percent per annum.

Our capital efficiency is the highest of any large cap company in the world.

Joe has helped us articulate financial objectives that will provide constancy for further generations of leadership.

Now as we begin to see signs of improvement in the business environment, we can thank Joe for putting us in an enviable competitive position where we are outpacing the vast majority of our competition and building upon a backlog that is three times larger than it was at the time of our IPO in July 2001.

Most important in the true spirit of stewardship, one of Accenture's cultural tenets, Joe will pass on a foundation of integrity and operational efficiency that will enable able future generations of leadership to perform at an ever higher levels.

In his continuing role as Chairman, Joe will be an invaluable resource in maintaining continuity during the transition to new leadership and in providing guidance to his successor through the next phase of Accenture's growth.

Thank you, Joe, for your relentless passion that you have channeled toward our people, our customers and our firm, and we look forward to your contributions as our chairman.

Operator, could you please open up the line for questions?

(OPERATOR INSTRUCTIONS).

David Togut with Morgan Stanley.

Congratulations on your announcement today, Joe.

Thank you, David.

And Harry did a little ad-libbing there I didn't know about.

Based on your knowledge of the preferred internal candidate, would you anticipate any significant strategic change for the Company over the next few years?

No, David, I think if you look at the basis of our strategy, how we position our business, we have built an incredibly strong leadership team and partners who share in the evolution of our business and the strategy and how we go about it.

And I think the important thing is part of our culture is always to continue to change to find ways to deliver new things to our clients.

So I think a lot of how we have evolved -- that you will see continuity and continued success as we evolve our strategy and change it, and have the courage to change it to meet our clients' needs.

So I think you'll see continuity.

As I said earlier, I'm not going away.

I'm going to continue to be active in the business, and doing a lot of things that have always been fun for me, and that is to work with our client teams, our clients and stay in the market.

Could you give us some additional insight into your view of the sustainability of the recovery of the consulting business that you have seen over the last couple of quarters?

And perhaps give us some sense -- perhaps drill down a little bit more on the pricing environment in consulting?

And maybe some thoughts on the new business pipeline?

Okay.

I think on what we're seeing here is -- I think overall the market, if you look at the consulting opportunities, we're seeing more and newer and bigger projects that our clients are undertaking.

I think as you look during a period where we saw a lot of the -- tough times that we have had.

Many of our clients stopped spending on major programs.

A major part of our sweet spot has always been to deal with building capability for our clients, how to provide better service to customers, how to enhance capabilities across the global enterprise.

All those things lead typically to more capital spending, more larger projects, more change oriented programs that are about extending our clients' capabilities to grow their business.

And I think what we're seeing is the market has been companies -- companies have enhanced their earnings performance are investing in their future.

And when you get into those large complex change programs as opposed to the smaller technology driven types of project, you start to see it move much more into our sweet spot as we have continued to -- I told about over the last couple of years.

I think pricing -- it is still competitive.

I don't think that is going to change in the near-term.

But I think we have seen the stabilization.

We have been on a very proactive program with all of our partners about being selected, picking our spots, staying focused on how we add value to our clients.

And I think what we see here is the results of just focusing on where we can take advantage of what we do well, and pricing our work where we can drive increasing amounts of value to our clients.

So I am optimistic that we will start to see some marginal improvement, but I want to see it happen in all of our numbers before we declare it done.

I think that is our view on pricing at this point in terms of how we look at it.

The third part of your question was what, David?

The third part of the question really related to the sustainability of the recovery in Consulting.

I don't think we're seeing -- I don't think -- certainly the decade that we saw before the downturn, I don't think we're seeing that kind of a change.

If you look at it from a technology services business, we certainly see clients starting to spend on new types of projects, but there's still a lot of ROI and return on investment approaches to it with our clients in terms of ensuring that they know how technology will improve their business.

If we see certainly the benefits of productivity with technology implementations during last through four years, I think we will continue to see companies believe that that technology will be a factor.

But I think more importantly, as you look at the mix of our business and how we see it, the sustainability as companies continue to have good earnings and reinvest those earnings back into its business, in terms of looking at where to take -- to increase market share to improve their capabilities will see business driven types of programs.

And that is part -- that is the part of it I think is exciting is to see a lot of this is business driven as opposed to just being small technology projects.

In terms of the sustainability I think certainly for the next six to nine months, which is about as far out as anyone can see today, I'm pretty optimistic.

Adam Frisch with UBS.

I don't want to spend too much time on this, because I think the bigger story is the numbers, but briefly, Joe, on your situation, I see you're retaining the right to hand Tiger the trophy every year at your tournament.

Can you discuss -- you were asked about strategy, but I think the more important issue is the financial priorities and goals going forward.

I don't think it would change, but can you just provide a framework as to what we can look to in your successor as CEO?

I'd want to get too specific on this, but I would tell you that as we discussed at length in terms of when we did the IPO, in terms of what we thought was important around our financial targets of where we wanted to be around strong operating margins, and be the best in the industry, about growth and outperforming our competitors, about the importance of free cash flow and preserving the whole partnership focus on cash and cash flow growth.

All of those things are things that we have all learned for years in terms of how we think about or business.

Those things are not going to change.

On the operating leverage in the model, in future margins, can you talk about where you think steady-state operating margins could be in the next -- I don't know if you want to go out six or twelve months or longer?

And how you get there focusing both on the consulting side and on the outsourcing side?

I know you said your book of outsourcing contracts are performing to plan.

Maybe give a different context of it, excluding all the onetime stuff, some of which we see, some of which we don't in your numbers as to how the outsourcing book is tracking maybe year over year and how you expect that to progress?

And then also what we can expect on the consulting side as well?

I will let Harry give a little bit of the details, but let me just give you our business way of thinking.

I think if you look at our operating margins, our goal is to continue to have those mid-teen type of operating margins.

We think we can do that.

I think if you look at the operating leverage, we still think as we see a different environment ahead of us on consulting, our ability to be able to gradually move up the value curve in terms of the type of work, which would yield a higher margins in consulting as a part of that operating margin -- a few price points.

If you look at the impact of a 3 percent improvement in client margin or gross margin, it has a huge operating leverage when it gets to the bottom line.

If we look at the outsourcing book of business, we have made -- if you look at where we have been, it has been a 30, 40 percent growth business over the last -- since we have been a public company.

We are getting some efficiencies now that we've got critical mass there.

And as we think of that also looking forward, we put in place some operational changes, some organizational change to recognize that it is getting to be a substantive part of our business.

You've seen the announcement with Joe and (indiscernible) in terms of what we're trying to do to beef up some of our capabilities and focus there.

In fact some of the guidelines in terms of our capital committee looks at these.

And so as Harry said, I think we will start to see some improvement in that of our portfolio.

And then the ongoing, relentless never-ending drive to continue to get more efficient in SG&A as a part of the leverage equation.

Harry, do you want to --?

Just to give some specific numbers, and I think you can infer them from my comments, if you look at why I mentioned that we hoped that Q1 was a bottom on outsourcing gross margin when adjusting for severance at variable comp.

We were up sequentially around 240 basis points.

Our Q2 gross margin, adjusting for severance and variable comp, are still down about 250, 260 basis points relative to Q2 of last year.

As we have discussed with you with the growth of our outsourcing business, but also with our taking some measured amounts of extra risk.

As we tried to grow into new areas the gross margin and outsourcing declined, but I think we are at a stage now with critical mass and with cost efficiencies that we can gain and the reorganization, which Joe described, to move out margin upward which will be very positive for our financials going forward.

Do you kind of see a cascading effect happening here where you will actually see an acceleration of margin improvement the further you get into the recovery, because initially you have to accrue for variable comp and the increase in salaries and all that stuff?

But as you move forward that the costs become less and the benefits become more?

So we could see that accelerate into the improvement?

I think there are stages of upward momentum here, Adam.

I think we will never want to see market position for the sake of accelerating short-term earnings versus properly maintaining long-term earnings growth.

But I think the key indicators, looks looking at operating leverage in the next handful of quarters, will be to see in particular how pricing relative to new consulting deals, hopefully will continue to improve, because that will refresh our portfolio at a higher margin.

And consulting is still 61 percent of our business, so that has very material free cash flow and other benefits.

As we have mentioned to you also the increased hiring is very helpful, because it optimizes the pyramid of our people.

It gives our people along a long awaited chance, not just for variable comp, but more important to free up some of the promotion issues that we, like other professional services firms, have had because of the downturn the last three years.

And I think finally, if we can see our improvement cascade throughout the industry, it could help with better than expected pricing for us in the industry overall, although we're still very cautious that that will take several quarters more, given the severity of the downturn.

I think, Adam, to answer your question there is potential for some more operating leverage momentum, but there are different milestones or stages that we have to keep tracking throughm, as I mentioned in my comments.

Last question here, what do you do with the cash?

The options are obvious, but do you guys want to do?

We're beginning -- I don't want to be premature here, Joe and I have been discussing this topic with the finance committee of our board.

We clearly have unique issues in terms of having partner secondary offerings -- that in the past we told you we wanted to have some cash backstop for.

We still want to have cash backstop, although if the equity markets continue to improve then we could be a little less conservative on that issue.

But clearly we now have levels of cash balances that provide more than enough backstop, as well as providing more than enough liquidity to run the business.

And the other unique circumstance we have to look through is given our 70 percent employee ownership, and the tax situation of our colleagues in 47 different countries, and the tax situation of our different public shareholders, we want to make sure we do the smart corporate financing to make sure that we deploy or redistribute the cash properly.

And we will continue to obviously further update you on that topic.

Moshe Katri with SG Cowen.

Harry, can you comment on demand trends in Europe, maybe going by the various geographies of various countries?

Thanks.

I think what is notable is that we really have good growth throughout Europe with a couple of exceptions.

We seemed to be bottoming in Germany.

We have had three or four quarters now where we have been in the minus 5 to minus 8 percent range.

And hopefully instead of bouncing around we can tick back up, but it is continuing to be a challenging economic environment in Germany.

In the Nordic region we have recovered generally with the exception of Sweden, although we do see better prospects there in the medium-term.

And then as I mentioned, Moshe, we had some small amount of local currency decline.

I basically call it being flat in Italy.

But I think if you step back, in general the landscape in Europe looks very, very strong.

And then it is also clearly propelled by having -- when you look at this record booking quarter, which we just finished with NHS in particular, 75 percent of the bookings are in Europe.

I think we feel very good about European revenue growth going forward.

That's great.

I think Joe mentioned pricing briefly.

Any feedback on your ability to raise bill rates on new consulting deals?

That is number one.

And number two, just as a follow-up in to the question about margins, can you give us update on where you are in terms of your ongoing effort to bring down the SG&A cost space in your transformational outsourcing business?

Thanks.

In terms of pricing, as I mentioned in my comments, when we do all the adjustments we're probably about 130 basis points better apples-to-apples in consulting gross margin.

A cautionary comment, Moshe, is we need many months in a row of improved pricing.

We have had some handful of months, and it has been somewhat sporadic so we need to keep that momentum.

But relative to the earlier question, if we can have some improved pricing momentum, and we actually talked about it this morning, Bill Greene in his comments to our partners this morning talked about how we needed to continue with our pricing disciplines and also to push forward with pricing improvement.

And we can continue to do what we have seen now for a relatively short window recently, that will be very, very helpful for financials.

Moshe, the second part of your question was what?

I'm sorry?

Ongoing efforts to bring down the SG&A cost base and transformational outsourcing?

I think clearly with critical mass in these outsourcing contracts, we're beginning to look at how we can cut SG&A.

I think Jack Wilson mentioned in our analyst meeting that he was hoping to cut out of the BPO portion of our outsourcing area about 75 million in SG&A.

And Jack's results are on track for the fiscal year.

I think with the reorganization having Joellin Comerford in charge of our outsourcing delivery, I think we're hopeful to gain some further efficiencies as well as market benefit.

Greg Gould with Goldman Sachs.

Congratulations on a good quarter and, Joe, to you as well.

On consulting -- on the pipeline front bookings have been pretty strong.

Have you been able to replace what is in the consulting pipeline as this stuff turns into bookings?

And maybe you can qualify that pipeline a little bit more?

The backlog, Greg, in consulting continues to grow which is a positive.

We have asked for all of your patience, and fortunately we have strung together now four consecutive quarters of year-over-year consulting bookings growth.

And so now you're finally seeing the revenue growth as I described, not only in this last quarter in U.S. dollars, but in the month of February in local currency.

We still need to keep the momentum going.

There do seem in the next couple quarters to be healthy opportunities on the consulting front, but it is still hard work to turn these things into bookings.

Is the sales pipeline though growing as well as bookings?

I think, Greg, the way I would characterize it is that the pipeline in a very healthy way in the near-term is flat.

We obviously took a lot out of the pipeline and converted it into bookings.

But clearly as indicated on the bookings guidance we provided, while we're not expecting an extraordinary performance like we had in Q2, we're clearly expecting a solid Q3 and Q4 as indicated once again in that 18 to 20 billion bookings guidance with an increasing profitability or probability of vesting the 20 billion.

What are your expectations around hiring this year?

Aside from the offshore workforces, maybe if you could comment on the hiring onshore or within the U.S. and maybe Europe?

What types of functions --?

Let me give you -- and Harry can throw in some more -- but I think if you look, we reached a significant milestone this quarter.

We reached 90,000 employees globally.

We have -- will hire somewhere near 30,000 employees globally this year.

We are about halfway there as we get through the first six months.

So we have hired roughly about 15 -- between 15 and 16,000 new people in the first six months of the year.

Our our whole strategy, as all of you know, is we use our global delivery centers not as a -- it is not an end tool itself, or not a stand-alone asset, but it is a part of our total solution.

They are linked with our client teams.

That averages on the average between 15, 20 percent, if you look at it out across the board of all of our projects.

Our strategy is clearly to innovate, if you look at our developed markets such as the U.S. and use the capabilities in our global delivery center for the types of things that we can deliver at price points that makes us competitive.

In the US, for example, we hired 2,300 hires in the first six months of year.

We will hit 6,000 for the year in the U.S.

We will have about 1,500 or so far they have left us on a voluntary attrition basis, usually to go to a client.

So we don't have lots of people who leave us to go unemployed.

I think we have done very well in terms of how we have grown our U.S. business.

And I would go on our European business is great -- I think your question ground Europe was, if you look at what we're doing in Europe, the hiring plans are on a trajectory that is roughly comparable to the U.S. as well in terms of the growth trajectory that we look at.

So what we -- if you look at some of the cost in terms of recruiting and things, you'll see us -- you've seen us ratchet it up some capabilities there.

So it is a big recruiting machine.

If you look at the task of bringing in almost 30,000 new employees this year, including the ones that we take on with outsourced deals.

Does that answer your question?

It did, and one last question.

Can you hit the high end of the accrual range, that 200 million, with the 18 to 20 billion bookings target, or does that need to rise to hit the high end?

I think, Greg, just given where we are in the year the bookings target has -- as the weeks go on here in the second half of the fiscal year, the bookings target has not much affect really on accrual of variable comp.

I'm glad you asked the point, because one of the comments I made just to make it more clear is that while we did accrue 64 million of variable comp in Q2, which is very positive, there was clearly as we discussed before some timing issues relative to realizing and generating cash flow and margin relative to the specific contracts we cited in the Q1 disclosure.

I think what you look at the 64 million -- that some component that you have to split into Q1.

You might want to call it 25, 30 million.

And then you sort of put the balance in Q2, and then you think about our running Q3 and Q4 at that adjusted Q2 level relative to looking at variable comp.

I want to make sure that people understand that the range I think is probably the practical range in terms of variable COM and what we will actually accrue.

Andrew Steinerman with Bear Stearns.

Harry, just a quick update.

The comment that stood out in the last conference call was that we were on track for a gross margin recovery in the second half of year.

Could you just remind us what the drivers will be to get gross margins up year-over-year in the second half of year, and is that still the drivers?

I think, Andrew, we really have drivers being consulting, price increase, and continuing to be able to first have it be stable, and then to see if we can push up prices somewhat.

And then improvement in how we run our outsourcing portfolio will help us with gross margins.

And then I think when you look for the next three quarters I think it will be important to measure our progress to look at gross margin with and without variable comp, as clearly variable comp has a significant impact on the reported gross margins.

I think you need to see how adjusting for variable comp, the overall gross margin is increasing.

But then at the same time too, you have to look at the gross margin we're delivering.

And I think we realize, and that's why I made the comment, that it was several quarters of really tough condition and it is going to take several quarters to fully get out in terms of getting our variable comp at the level we would like as well as getting the gross margins back to where we would like.

But all of us as a partnership group are very intensely focused on that.

And we're just as much on our way to a gross margin recovery as we were a quarter ago, right?

Yes.

I actually think we are slightly ahead of schedule, touch wood, but we need to continue to keep racking up good bookings at higher margin and then executing to the plans or contracts for each of those deals.

John Jones with Schwab SoundView.

Nice quarter.

Can you just help interpret the utilization rates that I thought I heard?

I thought I heard mid-80s.

Are we looking 84, 85 percent utilization?

We mentioned, John, that last quarter we were at 84 percent utilization, and we are spot on top of that in Q2.

And Q3 we are in that very tight zip code as well so far, although we have only seen data for two weeks here.

That is where we stand.

And then I think we're hopeful that there is still some more room there because of the hard work we have put together in terms of increasing training efficiency or business development efficiency as we were working through the downturn here.

Can you talk about what the consulting growth was in the U.S.?

You talked about the U.S. growing 6 percent in total.

Can you reflect on what the consulting segment gross rate was for the U.S.?

And also expand upon the UK deals.

When might we see them kick in?

Is there a lot of capital required for those deals, just kind of expand upon the wins there, which were quite large.

John, why don't we get back to you on separating out the U.S. consulting growth.

On the two UK deals, we don't comment on specific contracts.

I think the best way to describe them, they are wonderfully challenging projects that we are embarking upon for the NHS.

And I think we are very excited, but also very diligent to make sure we get these contracts off to a good start.

Good quarter.

Lou Miscioscia with Lehman Brothers.

Recently I did a survey and it seems like you all as per your results and your outlook to the second half are starting to be able to put through maybe a little bit of a price increase where it seems like some others maybe are not.

Can you maybe give us a couple of words on the competitive nature so that that correspondence with -- I am not sure if it was -- I think it was Joe's comment that he hoped that the rest of the industry would also be lifted up, and that would also obviously then maybe be then the second wave in improvements for you?

I think if you look at the business conditions, I think they're different then what we saw away saw during the last couple of years.

As I mentioned earlier, there are many more capital projects as our clients have looked at increasing capability.

Just an example, we have an active merge and integration -- a merge and acquisition integration business.

So there are a lot of different business areas that we're in, be it supply chain management, that are not tied to what you see in the technology cycle in terms of business consulting.

A lot of our traditional competitors that are public tend to be more focused on the technology part of the food chain.

And what our ability to be able to scale business consulting, to be able to also take on the harder, tougher, more challenging, larger systems integration and technology projects, and using our skills with transformational outsourcing and BPO, I think give us a space that does distinguish us from the marketplace.

So I think -- I'm not sure that we're trying to call a trend in terms of industry, but I think what we have done is you see where the marketplace is there are more business change driven things that are driven from overall corporate earnings growth, be it merges and acquisitions or investment in new capability -- there are less competitors that occupy that space.

And that is what we see the benefit of in terms of being able to achieve more value for our clients, and thus get to share that value with our clients more.

I think that is the best way I would look at it.

Maybe just a quick follow-up for Harry.

I know you might have already answered this, but just to sort of ask it in a little bit of a different way.

As things do pick up, let's say, not just the rest of this year but into next, and let's say margins and other things increase, do you expect a sharing of that to both partners and their variable comp, but also to let's say your bottom line?

And if you can just maybe give us some thoughts or color on that?

I think, Lou, in all fairness it is a very delicate balance, because the most important asset of Accenture are our people.

We need to make sure that they are compensated in a market competitive, but over the long haul in a superior total reward fashion.

And at the same time we have the objectives, which Joe described, of outpacing our industry as well as having an unmatched balance sheet and cash-flow statement.

I think we need to keep achieving that balance.

I think clearly having better results helps that.

And then I think very importantly the most important objective of our IPO was to share the ownership across all of our people.

I cited the figures in terms of how our nonpartners have benefited from equity oriented returns relative to RSUs and options they received.

And these are very significant amounts in terms of total payroll.

So we want cash COM to go up.

We want equity related returns to go up for our nonpartners, as well as our partners.

And at the same time we want to try to deliver to you superior financial returns relative to our peers and to the S&P 500, Lou, which most of your clients are benchmarked against.

It has been tougher to do it than the last few quarters than I hope that it will be in the next few quarters, is my positive conclusion to your question.

Dirk Godsey with J.P. Morgan.

Just to clarify the last point, it feels as there is maybe a more permanent change in how you view executive compensation, because certainly there's an inconsistency been record operating profits and really the performance of all the business units, the momentum you talked about, and the decision to reduce the variable compensation for the year.

So is this a more permanent shift away from cash compensation and that you are really finding and putting more value on the equity proportion of the total compensation?

I think in general, Dirk, we do have an objective of increasing -- and this comes from the compensation committee of our Board -- to increase the equity oriented compensation senior management has, as well as our partner group.

But also I think as a cultural tenant we hope that with being a public company that the equity is spread across all our employees.

And we've had phenomenal participation rates in our employees and stock purchase plan.

We have also given out performance options, as well as promotion options to our people, and of course a large number of grants just before the IPO to our people.

So I don't think it is any C change in philosophy, but our HR group has done an excellent job of surveying.

They actually used some really sophisticated work called Conjoin Analysis to look in how our people in different countries value different types of rewards, whether it be cash, equity, or non-cash benefits like medical and pensions.

And we try to strike a balance to give our employees what they prefer.

And it is something that is evolving over time and evolving as we better understand our employee needs, but also at the same time to deliver solid financial returns.

Does that help you?

Yes.

It just -- yet does.

And as a follow-up here, I guess I am doing the math right, GAAP earnings for the first half was 55 cents.

So if you take out 30 for the third quarter that leaves kind of 28, 30 cents for the fourth quarter, which is pretty much in line with Consensus, but -- and I expect everybody will do the math differently here, but it looks like 5 to 10 cents worth of cushion related to the lower variable comp target for the year.

So I guess just forgiving the impertinence here, but to draw on your favorite sport for analogy, because I think I've heard any sport analogies today, it looks like you are taking a knee here with two quarters left to go in the season, or in the game.

So I'm wondering if there is a specific plan for using this 80 to 180 million in variable comp that you no longer plan to spend, or is this just a rainy day fund?

The variable comp is going, Dirk, to our people.

God forbid Accenture ever took a knee.

We're kind of the type of people who play out every play for the last second, even whether it is the first half or the second half.

I think in general it is just the balance once again of doing our best to pay our people and our partners, but also giving solid financial returns to the shareholders.

And we're just -- it is a tough market environment and everyone is trying their absolute hardest here to do the best we can.

I think if we can accrue more variable comp, it is obviously very positive, but we also put it context relative to equity returns that our partners and our people are garnering thanks to your client's support, but also looking at how our cash compensation stacks up.

So we will try to do the best we can to maximize that variable comp number and at the same time try to maximize the earnings per share and free cash flow numbers.

I certainly -- Joe and I didn't tell the partners to cease collecting free cash flow this past quarter.

People I think it responded magnificently to our having a tough quarter in Q1, and we will find whenever opportunities are out there in the market.

I would say, Dirk, there is no big strategic change.

Our goal has been, and will be, to continue to pay our people attractive rewards to make sure we always have the best people in the industry, because that is what makes us where we are.

We look at that in a number of different ways.

It means ensuring we have a reasonable based comp.

It means variable comp we want to deliver to our employees.

The point that Harry made around 15 percent of the base payroll since the IPO has been delivered through various equity methods, either RSUs or options, to our people.

And it also means training and delivering our training commitment to our people.

And so there is a whole host of things that as we look toward a robust pick up, our people have sacrificed a lot in the last couple of years to keep the engine going during the down turn, and we have to always make sure we do the right thing for all of our stakeholders when we're doing this long term.

Thank you.

You have done an outstanding job through this cycle.

Congratulations.

Operator, I think we have time for one last question please.

Dris Upitis with CSFB.

Nice job in the quarter.

Just a few questions on outsourcing.

Can you give us an update on the pipeline there, and maybe some of the specifics in terms of the 100 million plus and the mega deals?

And then an update on the percentage of those deals that are sole sourced?

And finally what areas of BPO have been your strongest growth drivers here?

I think, Dris, in terms of outsourcing pipeline, as I indicated there are some good meaty deals that are available in the pipeline that will hopefully close before the end of the fiscal year.

I think if you look at the number of deals in the 100 to 500 million range there are some 40 some ideals.

There are a handful of deals in the 500 million to 1 billion range, and a handful in the billion plus range.

I think in terms of sole sourcing, we continue to follow Joe's strategic watchwords of going where the competition isn't, but more specifically to make sure we are creating unique value propositions so we're not getting into difficult auction-like situations with RFPs.

I think there's no material change on that, and the pipeline continues to be robust.

But at the same time I want to emphasize again, as I did in an answer to an earlier question, it is still really hard work.

It is not like these deals just fall off trees here.

I think on this BPO business, I think the whole Accenture finance area with F&N, HR and we are excited about our new Accenture procurement business that we're entering into.

Those, I think, are good opportunities for us.

Just on the headcount side, you gave some specifics on the gross hires that you expect for the year.

Is it fair to say that you expect over half of those to be in offshore facilities?

And then do you have an expectation for where than 90,000 number is at the end of year?

No, we don't expect the majority of that to be it in offshore.

As I said, we have very robust -- I don't have the numbers with me here, but we have very robust hiring plans across geographic -- geographically our business.

I gave you the U.S. numbers of 6,000 planned in the U.S. this year, and we have are about halfway there.

I think Europe is slightly above, but we get that back to you.

And then if you look at our work forces in terms of where we see the hiring, it is roughly split between our consulting and our services and solutions head count.

Okay.

Thanks.

Okay.

Let me go ahead and wrap up.

I appreciate your time.

Let me come back, if you will, to just some of the earlier question around the leadership change.

I would like for you not to look at this as an abrupt change.

At this time I think it is a natural evolution of our leadership.

At this time the splitting the roles of Chairman and the CEO I think give us more breadth of coverage.

I like to think of it as it is two of us not one in market with our clients and our teams.

The board and I have defined a set of areas that the new CEO and I will be responsible for, while giving the CEO clear authority as the leader and the decision maker.

We're not suggesting this is a permanent change in our governance model or that it is being done for any governance reason.

So I wanted to clarify that.

But I want to thank all of you for joining us today.

We're pleased to see a very good trajectory of our business.

And we will continue to execute our growth strategy aggressively in the marketplace during this leadership transition.

And once again I am thrilled to contribute to the ongoing success as Chairman and working closely with our CEO on driving even greater growth.

And I look forward to personally introducing our new CEO soon.

Thanks.

Thank you, operator.

Thank you.

And ladies and gentlemen, that does conclude our conference for today.

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