埃森哲 (ACN) 2004 Q3 法說會逐字稿

Welcome to the Accenture third-quarter fiscal 2004 earnings call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS).

As a reminder, this teleconference is being recorded.

I would now like to turn your teleconference over to the managing partner of Investor Relations, Ms. Carol Meyer.

Thanks, everyone, for joining us today.

With me are Joe Forehand, Accenture's Chairman and CEO;

Bill Green, who, as you know, will become CEO effective September 1st; and Harry You, our CFO.

We're pleased that all of you are joining us today for our FY '04 third-quarter earnings announcement.

By now I hope you've had the opportunity to review the news release we issued earlier this morning.

Joe will kick off today's call, Harry will speak to some detailed numbers, and Bill will provide an update on his transition and we'll save some time at the end for question.

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

Some of the matters we will discus on the call are forward-looking and I'd 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 filed with the SEC.

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

And we will provide reconciliations of those measures to GAAP which you can find on the Investor Relations page of our website.

So now let me turn the call over to Joe.

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

I want to thank you for joining us.

First, given the detail that we've provided in our preannouncement, we're going to keep our remarks pretty brief this morning.

I'll start with a quick overview, Harry will cover a few highlights, and then, as Carroll said, Bill is going to join us to talk about what he's focused on during the transition.

As you know, we're marching toward Bill assuming the CEO roll on September 1 while I remain as Chairman.

First, overall we had a very strong quarter.

In fact, it was a record quarter for us.

I'm really proud of our entire Accenture team around the world who continue to make all the difference in our performance.

Some of the highlights, we had our highest quarterly net revenues ever at $3.69 billion, that's a 21 percent increase in U.S. dollars and a 13 percent increase in local currency.

We had a real strong 31 percent earnings per share growth.

Each of our five operating groups achieved strong growth.

We had double-digit growth in each of our three geographic areas.

And we had our most profitable quarter ever in terms of operating income with a 42 percent increase your on year.

So what does all this mean?

These results reflect the continued pickup in our consulting business and the continued growth of our outsourcing business.

In fact, for the first time in 10 quarters our consulting business grew in local currency -- in total.

I certainly believe that our results reflect the real power of our high-performance business positioning and our strategy coming to life as the economy picks up in many parts of the world.

As we've been telling you, we've been working extremely hard the past several years to transform our business and get in shape to emerge from the economic downturn even stronger and our efforts have really begun to pay off.

In fact, I think our focus on disciplined execution and on helping our clients achieve high-performance in their own right has set a new bar in our industry.

We truly have a winning combination that will take Accenture and our clients to the next level of performance.

In terms of other highlights, we had new bookings of $3.4 billion.

Key wins in the third-quarter include two wins between $100 and $200 billion each and another four in excess of $50 million each.

Finally, in the third-quarter we accrued $93 million in variable compensation.

Funding variable compensation for our people this year is a top priority for our leadership team and I'm very pleased with the progress we've made there in the last two quarters toward this goal.

So let's look ahead.

I think we're in a very strong competitive and financial position and have tremendous evidence that our strategy is winning in the marketplace.

For example, for the first three-quarters of FY '04 new bookings are up 30 percent over the same period last year.

We've grown faster than the industry in each of the last three years.

We've sustained operating margins at the top of our industry and have expanded margins each year since our IPO.

We have the highest return on invested capital among our competitors and the highest ROIC of any large cap company in the world.

Since our IPO we have the highest total return to shareholders of any of our key competitors.

And finally, we've hired about 25,000 new people already this fiscal year across our global organizations with thousands in the U.S. and key locations in Europe.

This takes our headcount from about 83,000 at the start of FY '04 to approximately 95,000 at the end of Q3.

So net I clearly can see us operating as we look at the marketplace from our position of strength.

And, as we continue to get more wind in our sails with the economic environment improving, we believe we can continue to grow market share and provide the best opportunities, more interesting work as well as growth to our people.

So, in closing during the next couple of months Bill and I will continue our transition which has been progressing extremely well.

Bill will update you more in a few minutes about his plans and outlook.

And finally, I'd like to welcome our many new investors and shareholders who had participated in our secondary offering an April.

It was great to have 64 new investors participate in the offering and to have so many of our existing shareholders increase their positions in Accenture.

With that let me hand it to Harry.

Thank you, Joe.

I'll now provide you with an update on our third-quarter results and address some items that we did not discuss on our June 17th prerelease earnings call.

I'll keep my comments brief so we will have plenty of time for Q&A.

As you can see from our news release, consistent with what we said a few weeks ago, we had a record quarter for revenues and operating income and our business grew across all operating groups and geographic areas.

The components of our income statement and balance sheet have not changed from what we reported on June 17th, but I'll take a moment to update you on a few items.

First of all, let me clarify our free cash flow performance for the third quarter since I gave you a range on the prerelease call.

Free cash flow for the third quarter was 297 million defined as operating cash flow of 376 million less property and equipment additions of 79 million.

Our free cash flow benefited from strong income performance and increases in income tax and payroll accruals reflecting higher variable compensation and higher accruals (indiscernible) with increased headcount.

Partially offsetting these increases, our free cash flow performance was reduced by increases in unbilled services and a 105 million cash contribution to our U.S. pension plan.

In the first half of this quarter we have been focusing on reducing unbilled services so we have the foundation for collecting receivables by year-end.

On a nine-month fiscal year-to-date basis free cash flow was 1.183 billion compared to 945 million for the nine months ended May 2003 representing year-on-year growth of 25 percent.

Free cash flow is operating cash flow of 1.363 billion less 180 million in property and equipment additions.

Now I'll reiterate our expectations for the fourth quarter and the full fiscal year.

We expect net revenues for the fourth quarter to be in the range of 3.4 to 3.5 billion which would represent 13 to 16 percent growth in U.S. dollars or close to 10 to 13 percent growth in local currency over the fourth quarter of last year.

We also expect Q4 earnings per share to come in between 26 and 29 cents.

For the full fiscal year, including any future impact of EITF 00-21, we expect net revenue growth to be in a range of 15 to 16 percent and GAAP earnings per share to be between $1.18 and $1.20.

We anticipate that this earnings per share range will allow us to accrue between 210 to 245 million of variable comp for the year.

We are also targeting new bookings to be in the range of 18 to 20 billion for the full fiscal year, although we now expect to exceed the upper end of this range given our new bookings today and the pending opportunities in our pipeline that are close to being contracted.

Finally, we continue to target free cash flow of approximately 1.5 billion representing 15 percent growth over fiscal year 2003.

Now let me turn it over to Bill for some final comments.

Thanks, Harry, and good morning to everyone out there.

It's been a great -- to be on this call today and echo what Joe and Harry have said about our record results in the third quarter.

We've come through such a challenging economic time and have been working very hard to transform our business and thrive in this environment, which I think says a great deal about the heart and soul of this company.

I couldn't be more pleased with our competitive and financial position today and our opportunity to take Accenture to the next level.

Let me give you a flavor of what I've been up to during the transition since we last talked on April 8th.

My goal has been to get out and meet with as many partners, employees and clients as I can to listen and engage them in shaping the future of our company.

In the last couple month I've met with clients and employees across Europe, Latin America and the United States.

I've got more visits planned in Europe and the United States and will be headed to Asia soon.

It's been an exhilarating time for me to spend time with our people and partners and I'm grateful for the opportunity.

To a person, the men and women of Accenture are ready to take this business to the next level of performance, and you cannot help but be energized by their passion for our clients and our company.

The clients I've met with understand our high-performance delivery messages.

The focus on business outcomes really resonates with them.

And we're going to be even more focused on driving high-performance business into the marketplace as well as delivering results that demonstrate our own high-performance, that is Accenture as a high-performance company.

So I'm optimistic.

I think we're in great state to grow our business and, as I said in April, I believe we have the right strategy, we've demonstrated our ability to execute it, and I'm committed to maintaining the continuity of our financial goals and metrics.

Before we take your questions let me just a few words about my team.

You've seen the recent announcements we've made.

I'm thrilled to be working with Steve Rohleder as our new COO upon the retirement of Steve James this September.

Rohleder, as you know, has led our government operating group.

He's a truly exceptional leader and brings to the COO roll a strong commercial sense and judgment, a global outlook, outstanding skills as it relates to our people, and a real clients and growth focus.

I'm also pleased that Marty Cole will be our new Group Chief Executive for Government.

Marty, who has been leading our outsourcing business or four years, has a proven track record as a business builder with an intense focus on sales and client satisfaction.

I'm looking forward to working closely with both of them, and I do plan to make a few more announcements to my leadership team before September 1st.

So, as I look to '05 I'm focus on three key areas.

Number one, our people, the men and women of Accenture.

Number two, our strategy and high-performance business positioning.

And number three, our own high-performance as an enterprise.

At the investor and analyst conference in October I'll go into more depth on these platforms, but I do want to say now that the focus on our people is a top priority for us.

We've continued to invest in our people, including about 400 million in training this year and last, yet we will do more.

Giving our people the rewards they deserve is a top priority as well and we're getting the compensation and career value proposition right for each individual.

This is a huge area of focus for us.

So in closing, I'm thrilled about the opportunity to lead Accenture as the CEO and to continue working with Joe as our Chairman.

I believe we've got the right people and the right strategy and I'm personally excited about where we're headed.

With that, let me ask the operator to open for questions.

(OPERATOR INSTRUCTIONS) Adam Frisch, UBS.

Two part question here.

The talk of the tape is obviously focused on software and all the blowups there.

I would like to know your views on how you think the recent development in that kind of tangential space will impact your business over the near-term.

And maybe give us a little color on how the month of June is progressing.

I'll talk about the first comment;

I'll let Harry talk about June.

In fact, it's interesting; we were talking this morning just looking at -- to say to the software players and what's going on.

I think as we have been pretty consistent in how we've described our business really over the last three to four years, the work that we do, the content of the work we do, and our positioning around high-performance while, although it hasn't made us immune from the software cycles, it certainly -- our business is less a factor of software sales now than it's ever been.

So we don't do it -- although it's an interesting data point that we look at -- we look underneath it in terms of trying to understand who are the players that are doing well and who are not and whether our strategy is aligned with those players.

And that's a part of our alliance efforts, part of our programs to have the right relationships so that we can have skilled people and the software products that our clients demand.

That's the way we look at it.

But increasingly, much less of our business itself is correlated with the cycles of the software industry.

You use to say about 20 percent of your business was related, what would be the magnitude now?

I think that order of magnitude is still close, probably a little less as we've grown the (technical difficulty) outsourcing business has grown, so the outsourcing business itself has very little to do with the current quarter software sales.

So a big part of that is that as well as some of our consulting business as we've looked more and more and taken on the high-performance strategy work that's come back as well things like M&A and other things that we've been building, it's got to be less of a factor.

Although we don't quantitatively track it quarter in and quarter out, I'd say that the overall amount is certainly no higher than the 20 percent or likely even less today.

Adam, on the quarter to date I'd make two comments.

I think to reiterate what I said on June 17th, I think it's hard to imagine our business being in better shape than it currently is.

We have a lot of momentum and we're very pleased with the operating leverage in the business we're seeing.

And I think so far -- the second comment I'd make is so far things are going a tad bit better than we had earlier expected.

So, I feel once again very, very good about where we are.

Great, okay.

And then speaking of the operating leverage, the operating margin in the quarter was significantly higher than our forecast and it's obvious your business momentum continues to get better.

I was wondering if there was any kind of onetime event in the numbers, maybe like a previously underperforming contract catching up this quarter, anything which might have made this quarter's margin somewhat of a -- a little bit of a blip?

No, I think the results you're seeing are reflective of the true operating state or performance level of our business.

There's nothing of any onetime or nonrecurring nature that affected last quarter's numbers.

So this is the operating leverage starting to come through?

Yes, we believe so.

Okay.

And then finally, one of your AT&T contracts was obviously in the news recently as being terminated from their changing their business focus.

Can you provide them color on the magnitude of the financial impact -- revenues and margins would obviously be great -- and any impact this might have on your other AT&T revenue stream?

We have a policy, Adam, not to comment on specific contracts with our clients.

But needless to say, we've had a long-term relationship with AT&T and over the years we've gone through many changes in the business cycle together.

And their business is currently going through a major transformation and has already changed considerably.

And, as a result, we're working together to redefine the scope of some of the work we are going for them in their consumer business.

And as we've worked through these changes, I think you have to understand that our business relationship remains very strong and we will continue to work together on a variety of projects in many different areas of their business.

But I don't think it's really appropriate for me to comment on a specific contract or a specific relationship and what the quantitative details are.

I think -- also on a broader topic, I think it's also worth my bringing up language in the 10-Q which you'll see later in the week which is consistent with what I mentioned on June 17th.

And I think what you'll see in the language in the 10-Q is that -- and this is positive for us -- in our -- basically our growth oriented business initiatives are again competing with cost-cutting strategies.

And while outsourcing will continue to deliver strong growth to our business, it's likely to grow at a slower rate than it has over the past several quarters.

And we expect that you will see it and we will see it in our communications and high-tech group as well as our resources operating group.

Okay.

If I could just squeeze in one last one here.

I know it's a little early so you guys -- I appreciate the short script today.

The voluntary turnover, do you see that ticking up a little bit and would you actually welcome that in your business because it might allow you to -- if it forces you to raise wages that you might be able to raise prices a little bit faster to your clients openly (ph)?

Well, the attrition rate, as we mentioned, has picked up a bit.

It's not something that we haven't prepared ourselves for as we knew, as we see the economic environment improve, that one of the things that we find and we see is that our people have a set of skills that are in high demand from our clients and those in the marketplace.

So there is a level that we look at, Adam, that we like to try to managing between the 11 to 15 percent range.

It's 18 percent, so slightly higher.

It was 12 percent going back to Q3 of last year.

It is something we continue to watch and monitor.

But we're not overly concerned about it at this point.

But yet, as Bill said, one of the things that's a major priority for him as we look at the whole environment is to look at compensation.

We have an active effort underway to examine compensation in making sure we're compensating our people according to the market and offering a total package of competitive rewards.

So we do look at that as part of the equation to make sure that attrition is managed appropriately and it doesn't get to be a problem.

But yes, the answer to your question, there is a range.

You can have too low attrition which tends to not be healthy and you can have -- when it starts to get above 15 or 16 percent we start to look at it as well.

But hopefully that answers the question.

It does, great.

Thanks, guys.

David Togut, Morgan Stanley.

Just to piggyback on Adam's question, telecom outsourcing contracts generated about 80 percent of your total outsourcing bookings I believe a couple years ago.

Could you speak to the general risk profile of the telecom outsourcing contracts and whether AT&T might be a shot across the bow or just more of an isolated incident?

I think, David, you're correct.

At one stage six to eight quarters ago the communications and high-tech outsourcing revenues were growing at an extremely high rate which was reflective of where that industry was in its business cycle and in particular relative to the Internet bubble.

We feel very, very good about where we are in terms of the overall risk profile of those outsourcing contracts as well as our outsourcing contracts in general.

And I'd also add, when you look at communications and high-tech, I don't think you can give Bill enough credit for it.

I think if you look at this past quarter you'll see in the segment results that the operating group, communications and high-tech that is, earned more operating income than any other operating group.

And I think to come out of the devastation in that industry, basically moving to outsourcing alone relative to our competitors and now as we see the industry transitioning and there are certainly some segments that are now doing better.

There are other segments that are still struggling.

I feel we're in very good shape in terms of how we've managed the transition and how we're positioned going forward as evidenced by the segment profit you'll see in our (indiscernible) release here.

Thanks.

Just looking ahead to Europe and our CIO Survey work, we're actually hearing about a possible deterioration in IT demand in the back half of the year.

As you look ahead, the next six to 12 months, would you expect your growth more to be driven by market share gains in Europe or are you counting on any improvement in the macro environment?

I think as we look ahead -- it's certainly hard to look and see if the next 12 months you have a relative magnitude of growth and pickup in the overall spending patterns that we've seen probably in the last six months.

So we continue to look at data points.

We look at the surveys and things that you produce as well as others.

But you know, it's interesting too that -- there's just -- I think there are two thoughts as I look at it.

I think the market share gains is a big way we look at our success and how we're doing relative to the overall market that's out there and our ability to win more than our share and I think we've demonstrated we've been able to do that.

And that's certainly a part of our growth platform for next year.

And I would tell you also that if you look -- although it's hard to exactly quantify -- but if you look at the -- particularly when you get into larger transformation projects, when you get into a lot of the deals of who makes the buying decisions, there's just a lot of stuff that we do that won't necessarily wind up in a CIO Survey in terms of looking at overall spending.

I think that's the way we look at it as well.

What's really interesting, David, if you recall to our analyst meeting almost a year ago, the one before that in the downturn, which we now feel we're through, we outpaced our European competitors by 10 percentage points.

And if you look at the last quarter at the pure play European competitors, we're outperforming them by a little bit more than 10 percent in local currency.

It's been a pretty consistent market share gain that we've gotten at the expense of our regional European competition.

Okay, thank you.

Gregory Gould, Goldman Sachs.

On the attrition issue, where are you seeing more -- where has it increased the most?

Can you talk about the attrition between partners, traditional consultants and maybe the offshore folks?

What's interesting and, as Joe mentioned, clearly monitoring the statistics with the disproportionate source of attrition recently has been in Asia.

And so we are monitoring that carefully.

There's also a seasonal attrition that's not surprising in the third quarter when you think about the school year and so forth.

But I think, Greg, the answer to your question, we're going to have to see how things progress here with the economy and how our attrition may progress here over the next year or two.

But clearly we're very positive to have some meaningful variable comp.

It's going to -- as we've signaled in the past, be disproportionately given to nonpartners.

We think that's going to be immaterial.

If you look at the pay raises that we feel comfortable funding for people for the next fiscal year, that's going to be a huge positive.

And then as I mentioned three weeks ago, I think if you look at the equity gains that we thank you and all our shareholders on, when you look at the folks who compete for our people, the vast, vast majority of them have not had any equity appreciation of any note.

So, is the total rewards for our people from those monetary components as well as what Bill has described in terms of what's industry-leading training levels makes us feel like we have a good hand and a great way to compete relative to attracting and retaining the best people.

And Harry and Joe, what is your -- you mentioned that the firm is hiring again.

A lot of that hiring has come in the past from outsourcing and solutions.

Is the consulting or do you expect the consulting workforce to rise in net numbers in Fiscal '05?

Yes, and this will be the first year in I think three that we would expect a net increase in consulting.

So, if you really look at it across the board from consulting, we're hiring very aggressively.

We're doing it both from the market.

We're also hiring lots and lots of people from the campus at the very junior levels to build out the right pyramids of our workforce as we're starting to see consulting pickup.

Solutions and the services workforce, those that we -- services builds that we acquire from and outsourcing contracts are also a key part of that growth.

And then if you look on a geographic basis across our geographies, we have a very strong hiring that we've accomplished for the first three quarters as well as for the total year you'll see very balanced growth in the three geographies with about 8,000 or so in the U.S., over 10,000 in Europe and -- as part of that mix.

Okay, thank you.

Andrew Steinerman, Bear Stearns.

My question is about gross margins before severance and accrued comp.

We show a great improvement sequentially in the third quarter.

When I'm looking into the fourth-quarter of course we'll have downward seasonality.

My question is how much might that downward seasonality be and will these gross margins before comp and severance be up year-over-year?

I think, Andrew, on the first part of your question the seasonality difference that you'll see from third quarter to fourth quarter this year will be in the similar order of magnitude of what you've seen in the last couple years.

I think in terms -- as I mentioned in the prerelease call as well as the call before -- the year-over-year increase I'm hopeful we'll actually see an absolute improvement year-over-year starting from Q2 of next fiscal year because, as you all recall, Q2 of this year is the first year where we accrued some significant variable comp.

And obviously the variable comp makes a big difference in terms of the gross margin.

So that's certainly the internal target we have.

We'd love to get gross margin moving back upward as the economic cycle continues to improve, but you have to give us four full quarters here of accruing variable comp so we can do the year-over-year comparison and make that be favorable.

Absolutely, Harry.

My question was before severance and variable comp will it be up?

I think it will be, Andrew.

Sorry I missed your caveat or distinction.

That's okay.

And just a second quick question.

If I read the press release correctly, we're now looking for 26 to 29 cents, and in the pre release we were looking for 25 to 29 cents even though the revenue guidance hasn't changed.

What's changed on the cost side to kind of narrow the range upward?

We have just had three weeks transpire and the fourth-quarter, as I mentioned, is our most volatile quarter in terms of forecasting earnings because of the summer vacation phenomenon, particularly in the month of August.

And as each day goes on our visibility improves and, relative to the earlier question, sort of quarter to date has gone a tad bit better than expected.

So I don't think people should get overly concerned about the range or reading into it.

I think how we've performed in the past is probably the best indicator for what folks might expect for this quarter and for coming quarters.

Sounds good.

Thank you so much.

Cindy Shaw, Schwab SoundView.

I have a couple of questions for you around pricing.

One, we're obviously sure that certain areas of Accenture is quite strong and such as RFID is a place where we'd expect some pricing power.

I'm wondering how much of the pricing power is around being in the right areas and how much of it's around business outcomes?

And then related to that, clearly you've won a lot of business based on your gain sharing, is that impacting current revenues?

Is some of that business essentially going to be booked as revenues down the road?

Is that material impacting what we're seeing in terms of results right now?

Cindy, this is Joe.

Let me try to -- I've taken some notes here, let me try to go back through this and address your question.

I think certainly the pricing power -- we set out really going back last -- the end of last calendar year is we could start to see the pipeline of opportunities.

We saw companies begin -- companies and governments look at the next round of investments, the next round of capabilities that needed to be built and we could see that some of the investments we've made in terms of our offerings, both on an industry basis as well as a horizontal basis, were unique to us, unique to some (indiscernible) intellectual property or capability we've had are things we've been working on.

RFID as an example.

RFID is something we've been working on for five years and have pioneered some of the research on and have developed some of the pioneering applications in areas that may not be first apparent.

And so certainly there's technology innovation we've been working on that gives us an edge in terms of how we've looked at those investments in terms of getting us some pricing power.

And as to the extent that you get larger more complex programs and projects where the risk profile gets to be higher.

Companies -- I'd say a big factor is companies look at the tougher the problem the tougher the challenge.

There are fewer competitors who are willing or who have all the capability to do the type of things where people and business managers are willing to bet their jobs on the outcome.

And so I think we're seeing a big part of the pricing power as you get to fewer competitors who can compete in some of the larger programs coming our way.

And certainly our ability to take some portion of our fees and do gain sharing on some of these to place some of the outcome of the success of this as a beautiful (ph) alignment with our client objectives.

And we do that when we're confident that we have sufficient risk management mitigation in place and that we have sufficient alignment on and basically control of the outcomes to be able to undertake those.

So that's a factor as well.

But I think it's the confluence of several things with a pickup in consulting, a pickup in the bigger change efforts that tend to be riskier.

It's an ability to proactively, based on some of the offerings that we've invested in, to create demand, if you will, by having offerings or capabilities be it M&A integration, for example, is a good one that as you look at the economic environment improving.

So it's all those things I think that we set about really going back last November to get I think more precision in our pricing model, more precision in terms of making sure we've understood the value proposition for each client.

And I think that's what we're starting to see.

And frankly, a little more flexibility to pick and choose those places where we deploy our resources that give us the -- that edge.

On the gain sharing it would seem that some of that revenue is effectively deferred as the customer gets the gains that have been promised.

Is that materially impacting revenues at this point?

Does that mean they can look for some of that gain sharing revenue from work you've done in the past to start hitting in future quarters?

I think, Cindy, there's generally a pretty consistent pattern.

We might on the margin in a quarter do slightly better or worse relative to gain sharing deals, but it's generally something that doesn't overly preoccupy us when we work on those, the forecast is generally pretty stable.

I made a plug for Bill's former operating group.

I think Steve Rohleder and before him, David Hunter, have done a fabulous job relative to our government operating group and the value based deals we've done there.

It's probably, believe it or not, around 20 percent plus of the government operating group's revenues.

As Joe indicated, we've really done an outstanding job where it's financially sound for us and where it's appropriate for the client trying to structure innovative deals like this.

On that note you've recently won visit (ph) and it seemed that was very focused around business outcomes.

Also the PSA contract you had helped get the leverage (ph) streaming up.

Very focused on business outcomes, that's unusual for the federal government.

Is that signaling a change in their purchasing process going forward that I think would favor Accenture?

I don't know that it's an overall change that's going on in government procurement but I do like to think that our ability to be able to, in government, to be able to show value.

And I do think increasingly as you look to some of these contracts where there are different criteria as we look and what the decision criteria is which is usually a part of the specifications, if there's enough of it it's based on things like value and innovation as opposed to just lowest cost.

We look at that as how we've screened the opportunities.

And when we match that up with our value proposition then we tend to put more business development dollars into going after those types of opportunities where the type of criteria that we think matches against our core strength.

That's that we look at it, Cindy.

Okay and one final question.

I know you're not going to comment on specific contracts such as AT&T, but in my experience when a contract (indiscernible) rescopes (ph) there's some give and take.

Would that -- is there any reason to think that that would be any different now?

I think what I said is pretty clear on that relative to our relationship with AT&T.

And Cindy, we'll evolve with them and vice versa but saying more than that wouldn't be appropriate.

Great.

Thanks very much.

Bryan Keane, Prudential Equity.

I wanted to dig down about the improvement in consulting.

Is there any particular areas of strength between business consulting and systems integration or are they equally strong?

Let me just get Bill in the mix here.

He's pretty close to what's going on between business consulting and obviously has some points of view in terms of where we're trying to take both of those growth platforms, business consulting and systems integration.

But ask Bill to comment on that.

Yes, I would just say if you stand back and look from it, the first thing was sort of the core consulting business and the business consulting space coming back and it came back along particular areas around, for instance, supply chain, customer service.

I say that in a broad -- broadly speaking and then some specialty areas like strategic sourcing, like merger integration work.

Those kinds of things that were really our bread and butter; places where we sort of stand in a class by ourselves in terms of being able to provide those services.

And we have better pricing leverage.

As it relates to the systems integration part, the heartening is really that those sort of core complex envisioned architect design build engagements have started to come back.

People building what we use to describe as very traditional solution sets that support the underpinnings of their business.

And that's an area that people have not spent a lot of money on in the past several years and we see people have come back in that in a pretty aggressive way.

So, in terms of consulting coming back, it's some defined areas of our come business consulting services and then some of the sort of bread and butter of this business as it relates to building out of solutions to support the next five to 10 years of our clients' growth.

And some of that leverage you're seeing in the pricing, is a lot of that to do with the sole source work that you guys do?

And I don't know if you guys have given a percentage of some of the consulting work that is now being sole sourced?

We continue to have our sole source mix pretty much the same.

That's something we work very hard on to make sure we sustain it.

But importantly it's -- I always say the company with the best people wins.

And we're in a position right now where if you have differentiated skills and capabilities and can provide those to your clients, you have the ability to get better than average pricing.

And that's something that we get started focused on and that we intend to continue to be focused on.

And therefore my comments regarding our men and women I take to heart because that is an important dimension of how we do what we do and how we differentiate.

And that's something we're going to continue to put focus and power behind because it does differentiate us and differentiation gives you some -- more pricing power than your competitors.

How much is the push that we're seeing in the marketplace to move off shore pressure billing rates, or are you able to offset that with increased demand?

We have not seen that -- I mean, it's different kind of work and certainly there's a dimension of that work that puts pressure on some elements of the stack as we call it.

But importantly, we're seeing business come back in all areas of the stack from highest impact, highest value, strategic work right down.

And as a result a lot of our teams are now focused more in the sort of core consulting area than they might have been in that sort of pure play low end SI (ph) space that there's a lot of competitors in.

Okay, great.

Thanks for those comments.

And then finally, Harry, is there any comment of what we might think about for variable comp going into fiscal year '05?

I think the range for this year is 210 to 245.

How does that scale up next year?

Well, we'd like to build off fiscal year '04 as the base for '05, but variable comp is variable by definition.

And I think we'll be working hard next fiscal year to earn as much variable comp as we can for our people subject to the economic and business conditions that are out there.

Okay, great.

Thanks.

Edward Caso, Wachovia.

I was wondering if you could talk a little bit more about geography, and particularly I was interested would sustain (ph) -- others appear to be struggling to get their Spanish based employees sort of utilized?

And maybe if you could highlight any particular countries that are either doing well or not doing well.

I will let Harry go through some of the details on geography.

But I think if you look at Spain, for example, we've built a business now, I think we have more than 8,000 people in Spain.

If you look at our market share and our relationships with executives in all the key companies, the key industries.

The ability to be able to have a boardroom discussion.

I think Spain is a good example for us as a country where our market share and our presence is one as we look at overall indicative data such as our revenue related to the GDP in a country, Spain goes right to the top in terms of kind of our positioning as compared to the economics of Spain.

So there, that's just a case of where strength builds on strength and I think that's how we've tried to position strategically all the countries that we operate in.

The major ones that are really important is to be able to have the scale of the relationships, the scale of the -- the ability to recruit at the best universities to get the best people and train them.

And Spain is probably one of the best examples of that.

The UK is just really doing exceptionally well.

I think even relative to our competitors the growth we've had in the UK has been really strong.

Germany is coming back.

Harry, you may want to add any commentary on a geographic basis.

I think Germany and Italy are two that we have had some bit of softness or flatness recently but the signs are that they're picking back up too.

Ed, I totally agree with what Joe is saying.

I think you really have to look at what we have in many countries, particularly in Europe in terms of Accenture having a unique franchise in really the last quarter, as we mentioned today, and on June 17th is all the major countries in the world are growing for us.

So we couldn't be more pleased.

All the major countries in Europe, clearly the U.S. and Canada are growing robustly for us.

We didn't give the figures, but the growth in Asia has been profoundly good as well.

We grew last quarter in local currency in Australia by 16 percent, grew in China in local currency by over 100 percent, grew in Japan in local currency by 20 percent.

It's really a wonderful across the board phenomenon we're seeing.

Could you talk a little bit more on the turnover in Asia?

Is it India, non India?

And could you also discuss turnover consultant versus outsourcing?

We typically haven't gone into detail on consulting versus outsourcing.

In Asia it's been throughout Asia.

It's not particular to any one country and it's a one quarter data point.

So we'll see how that unfolds here.

Thank you.

Dris Upitis, CSFB.

It sounds like you had a good month of June, but I just wanted to ask a little bit more specifically about bookings so far in the quarter.

Three weeks ago you had mentioned a number of deals that were near closing and just wanted to touch base and see if you have an update on how bookings have trended in the first five weeks of the quarter?

We don't comment -- I think we decided a year ago not to comment on monthly bookings, but we've had some good announcements so far, as you've seen in the month of June.

And our partners are driving forward to close out the year strong as well.

And hope we'll have some nice announcements here in the month of July to share with all of you.

Okay.

And then just a quick follow-up question on the Bermuda issue that's been a little bit of a nuisance here.

And it sounds like on the U.S.

Visit side of things that you're managing through that.

But just wondering if you had any feedback or any effect on that in your other federal business?

We have not seen any effect of anything there that -- other than what we've communicated previously which is that we have not seen any impact of that.

We continue to monitor legislative status, but there's no really new news to report there.

Okay, great.

Thanks.

Brandt Sakakeeny, Deutsche Bank.

Two quick questions for you.

The first one is can you give us just an update on the U.S.

Visit program, specifically just any updates on timing or any expectations for startup costs associated with that?

And I guess the second question would be just to touch on the labor markets in the current hiring environment.

Are you finding your college recruitment efforts that the labor market is tightening at all or anything on that would be great.

Thanks.

Well, on the contract, as Harry said, unless we get client approval our policy is generally not to talk about specific contract issues, but we are proceeding ahead and I'll leave -- with the U.S.

Visit program, there's nothing other to say than what's been communicated publicly.

The labor market tightening, I think that's a function of the geography.

Certainly in certain geographies we're starting to see, as companies get more actively involved in hiring, I think we're seeing some upward pressure that we see, as Bill and Harry both mentioned, on compensation because the labor market is picking up.

I don't know if you could say it's tight at this point, but yet it's certainly a different environment than what we experienced going back over the last couple or three years.

And then it's very highly variable on a geographic basis.

Okay, great.

Thank you.

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

Cynthia Houlton, RBC Capital.

Thanks for taking my question.

Just -- I think a lot of my questions have already been asked.

You haven't commented much on BPO both in terms of what the revenue contribution was in the quarter.

And then just kind of what the trends you are seeing in that business, the aspect that there was a lot of talk about earlier this year, but just haven't heard as much about that being a driver?

We're continuing to see strong growth in BPO.

Jack Wilson and our partners are focusing on increasing our market share in the areas that have the best profit margins to us.

And we continue to feel that it's a very important part of our strategy here going forward to not only do the transformational or one to one outsourcing work, but to expand what we call our one to many outsourcing work.

So, you shouldn't take the silence as being any indication of any lessened strategic commitment or emphasis on our part or any less good quality results we're seeing in the area.

And then just the revenue contribution in the quarter?

It's a portent of our overall outsourcing business.

It's running about 15, 16 percent of revenues in total.

Great, thank you.

Okay.

Let me go ahead and close.

I want to thank all of you for your questions and let me just say a few final words to close the call.

I want to let all of you know that this will be my last earnings call as Bill takes over fully on September 1.

And I'd be remiss if I didn't make a few personal comments.

First, I want to thank each of you around the world for your support and confidence in us since our IPO now three years ago.

I've enjoyed the personal relationships I've developed with so many of you.

Certainly as we look at the recession it has been a rough ride at times for all of us, but it's been certainly exciting and positive overall for me personally.

I also want to take a moment to acknowledge Steve James who you know has been our Chief Operating Officer for the last four years during my tenure as CEO, and Steve will retire on August 31.

After a phenomenal 36 year career with us, he will continue in a role as international chairman to help us with continuing to develop business relationships and other matters.

So he's made an enormous contribution to our growth.

He's got a great passion for our company and we're fortunate that he'll continue to support us in this role.

I can tell you, both Bill and I are excited to work with him in this new role.

So with that, it's been indeed my pleasure working with all of you and I can assure you that we're in great hands with Bill as our new leader.

Thanks, again.

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