埃森哲 (ACN) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to Accenture's fourth quarter and full year fiscal 2005 earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to your host, Ms. Carol Meyer, Managing Director of Investor Relations for Accenture.

Please go ahead.

Thanks everyone for joining us today for Accenture's fourth quarter and full fiscal year 2005 earnings announcement.

With me this afternoon are Bill Green, our Chief Executive Officer;

Mike McGrath, our Chief Financial Officer; and Steve Rohleder, our Chief Operating Officer.

I hope you've had an opportunity to review the news release we issued earlier this afternoon.

Let me quickly give you the agenda for today's call.

Bill will begin with an overview of our results and describe some of the trends we are seeing in our business, then Mike will take you through the results in more detail, and Steve will add some operational perspective.

Mike will then take you through our business outlook for the first quarter and the full fiscal year 2006 and Bill will provide a brief recap before we open up for questions.

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

Some of the matters we will discuss in this 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 and other filings with the SEC.

Accenture assumes no obligations to update the information presented on this conference call.

During our call today our speakers may reference certain non-GAAP financial measures which we believe provide useful information for investors.

We will provide reconciliation of those measures to GAAP, and you can find those reconciliations on the investor relations page of our website at Accenture.com.

So now let me turn the call over to Bill.

Thank you, Carol, and good afternoon.

We are exceptionally pleased with our fourth quarter and full year performance.

We delivered record top and bottom-line results and exceeded our expectations for net revenues and earnings per share.

For the year, we grew revenues well ahead of the industry average, and consulting grew 11%.

We achieved our operating margin target of 13% for the year.

We delivered EPS growth of 28%.

We have a solid balance sheet and free cash flow for the year was 1.57 billion, the highest ever.

We also set new records and achieved important milestones demonstrating that we continue to build momentum in the marketplace and demand for our services continues to grow.

For example, in the fourth quarter, we had the highest quarterly growth in local currency since 2001.

The highest quarterly bookings in six quarters, and we achieved a new record for growth in the Americas as a public company.

This was driven by strong growth in the United States where our Grow America program has really taken hold.

We also set some records for the full fiscal year.

Our net revenues were 15.5 billion.

Our operating income and earnings per share were also at new highs.

All of our operating groups delivered solid revenue growth with financial services and products achieving record growth in both U.S. dollars and local currency.

Fiscal 2005 was the first year Asia Pacific passed the $1 billion revenue mark.

In addition to delivering financial results ahead of our expectations, we were also able to accrue variable compensation.

Of course, we could not have achieved these results without the hard work and dedication of the more than 123,000 men and women of Accenture.

We reached another major milestone today when our Board declared Accenture's first cash dividend.

This action, together with the 1.6 billion worth of shares we repurchased during the year, and the authorization we have to continue these repurchases, demonstrates our commitment to return cash to shareholders.

Mike will give you more details in a few minutes.

We continue to see momentum in the marketplace and I am excited about the new products and services we're creating.

Our team has done a phenomenal job of ramping up our offshore capability and our global delivery network.

Our BPO leadership is really taking hold, and we're seeing increased demand, more prospects, and a very active pipeline.

Across the board, we believe that we are well positioned as we begin the new fiscal year.

I'll be back with you shortly but now Mike will provide more detail on our financial performance.

Thanks, Bill, and good afternoon.

We--. [AUDIO DIFFICULTIES]

We had a technical problem here.

Should Mike start again or did we finish the end of Bill?

Just help us here.

Mike should start?

Mike why don't you start again.

Sorry, everyone.

We had a little phone problem.

Thanks, Bill, and good afternoon.

We had a great fourth quarter and delivered solid performance for the full fiscal year.

Let me walk you through the income statement, balance sheet, and cash flow.

For the fourth quarter net revenues were $3.92 million up 15% in U.S. dollars and 14% in local currency.

Slightly over the top end of our expected range.

Breaking down revenues by type of work, consulting reached $2.38 billion, or 61% of total revenues.

Our year-over-year increase of 11% in U.S. dollars and 10% in local currency.

Outsourcing revenues for the fourth quarter were $1.55 billion.

They were 39% of total revenues, an increase of 21% in U.S. dollars and 20% in local currency.

For the full fiscal year we've generated 15.55 billion in revenues, an increase of 14% in U.S. dollars and 10% in local currency.

Consulting grew to $9.56 billion for the year with 11% growth in U.S. dollars and 7% in local currency.

Outsourcing accounted for $5.99 billion, or 39% of net revenues with a year-over-year growth of 18% in U.S. dollars, and 14% in local currency.

Gross margin for the fourth quarter was 33% compared with 32.4% in the same period last year.

For the full fiscal year, gross margin was 32.8% compared with 33.8% in fiscal 2004.

This decline reflects the operational challenges we discussed in prior quarters.

SG&A costs of $778 million in the fourth quarter were 19.8% of net revenues compared with 21.4% of net revenues in the fourth quarter last year.

For the full fiscal year we were able to reduce SG&A costs by 100 basis points over last year.

SG&A costs were $3.07 billion and 19.7% of net revenues for the full fiscal year compared with 20.7% for the prior year.

GAAP operating income for the fourth quarter was $509 million, or 13% of net revenues, compared with $371 million, or 10.8% of net revenues in the fourth quarter last year.

For the full fiscal year, GAAP operating income was $2.11 billion, or 13.6% of net revenues, compared with $1.76 billion, or 12.9% of net revenues for fiscal 2004.

Excluding reorganization items, operating income was $2.02 billion, or 13% of net revenues, which was our target for the year.

GAAP operating income was up 20% over last year. 2005 was the first year we exceeded $2 billion in operating income.

We accrued $36 million in variable compensation expense in the fourth quarter, bringing the total amount accrued for the fiscal year to $100 million, which was in line with our target.

Our effective tax rate for the fourth quarter was 33.1%.

For the full fiscal year, our annual effective tax rate was 31.6% within our expected range.

Income before minority interest was $363 million for the fourth quarter compared with $300 million for the same period last year, an increase of 21%.

Income before minority interest for the full fiscal year was $1.51 billion compared with $1.22 billion last year, an increase of 23%.

Diluted earnings per share for the quarter were $0.38, an increase of 27% over the fourth quarter last year and $0.01 above our expected range.

For the full fiscal year diluted EPS were $1.56, which was up 28% from last year and ahead of our expected range.

Now before, we look at our balance sheet let me comment on new bookings for the fourth quarter and the full fiscal year.

For the fourth quarter new bookings were $5.16 billion.

Consulting accounted for $2.4 billion, or 47%, and outsourcing accounted for $2.7 billion, or 53%.

For the full fiscal year new bookings were $18.03 billion.

Consulting accounted for $9.73 billion, or 54%, and outsourcing accounted for $8.3 billion, or 46%.

Even though our new bookings were at the low end of our range for the year, this booking low was consistent with our book-to-bill targets and we are confident that we will drive our revenue growth for fiscal year '06.

For the fourth quarter, free cash flow, defined as operating cash flow net of property and equipment additions, was $436 billion.

This includes operating cash flow of $567 million less property and equipment additions of $131 million.

Om a full fiscal year basis free cash flow was $1.57 billion, within our target range.

This includes operating cash flow of $1.89 billion less property and equipment additions of $318 million.

Our total cash balance at August 31, 2005, was $2.48 billion compared with $2.55 billion at August 2004.

Cash combined with 701 million of fixed income securities, classified as investments on our balance sheet was $3.18 billion at August 31, 2005 compared with $3.15 billion at August 2004.

Total debt at August 31, 2005, was $75 million.

Our balance sheet and associated metrics continue to be strong.

Return on our invested capital of 55% ranks Accenture first against S&P 100 companies and is well ahead of our proxy peer group average of 5%.

Return on equity of 59% ranks Accenture sixth against the S&P 100 and well ahead of our proxy peer group of 6%.

Return on assets of 18% ranks Accenture second against the S&P 100, also well ahead of our peer group average of 2%.

Our day services outstanding, or DSOs were 49 days.

Again, in line with our target.

Before I hand off to Steve, let me discuss how we are returning cash to shareholders through share repurchases and the payment of our first dividend.

In fiscal year 2005, we repurchased or redeemed 65.8 million shares, for a total of $1.6 billion.

At August 31, 2005, we had 1.7 billion of share repurchase authority remaining.

In September, the Board authorized the use of an additional $800 million to purchase shares at a discount through an SCA tender offer which is scheduled to close on October 13.

As expected the interest in the offer is coming primarily from our former partners who hold shares that are restricted until 2009.

In addition to returning cash to shareholders, our share repurchase activities have helped eliminate the need for large market offerings.

I'm pleased to announce that today our Board declared a cash dividend of $0.30 per share on Accenture Class A common shares for shareholders, a record at the close of business on Monday, October 17, 2005.

Accenture SCA will also declare a dividend of $0.30 per share for shareholders a record of Accenture SCA Class 1 common shares at the close of business on Wednesday, October 12, 2005.

Both dividends are payable on November 15, 2005.

We are committed to returning cash to shareholders.

Over time you may see us shift the mix obtaining a higher dividend.

Now let me turn the call over to Steve for some more details on our operations.

Thank you, Mike.

Good afternoon everyone.

I'm going to comment on the performance highlights of our operating groups and geographic regions for the fourth quarter and the full year.

And then cover some of the key operational drivers that helped us deliver strong performance for the year.

At a high level our financial services and products operating groups turned in exceptional performance with strong double-digit revenue growth in both the quarter and the year.

Our Americas region achieved strong growth in the fourth quarter as our focus on growth in the U.S. is building momentum.

In the fourth quarter we also signed seven deals in excess of $100 million including key engagements with BT and the state of Texas.

We continue to grow headcount.

Attrition remains stable and utilization continues to be above 80%.

At the same time we have focused on the key levers to improve margins and drive profitable growth.

Now let's take a look at the results of our operating groups.

Communications at High Tech, our largest operating group, is also now our most profitable.

Net revenues in C&HT increased 11% in U.S. dollars and 9% in local currency in the fourth quarter.

And 7% in U.S. dollars and 4% in local currency for the full year.

One of the key trends in C&HT has been the rebound of the electronics and high tech sector resulting in increased demand in more strategic areas such as sales and employee enablement.

Financial services is also a real success story and we're seeing significant growth this year.

Revenues grew 15% in U.S. dollars and 14% in local currency for the fourth quarter.

And for the full year financial services revenues jumped 23% in U.S. dollars and 18% in local currency.

This growth is being driven by our asset-based offerings with demand for core banking systems from both retail and commercial banking clients.

Resources grew 14% in U.S. dollars and 12% in local currency for the fourth quarter, and for the full year resources grew 10% in U.S. dollars and 5% in local currency.

We've seen increased demand for systems integration services as clients in energy, chemicals, and natural resource invest in refreshing technology.

In the fourth quarter our government operating group had revenue growth of 10% in U.S. dollars and 9% in local currency.

For the full fiscal year, government grew 9% in U.S. dollars and 6% in local currency.

We're seeing more client interest in the area of shared services and vertical BPO offerings like human services eligibility in both the U.S. and Europe.

The products operating group also turned in very strong performance growing fourth quarter revenue 23% in U.S. dollars and 22% in local currency.

For the full year products grew 20% in U.S. dollars and 16% in local currency.

Fourth quarter growth in Europe was driven largely by outsourcing and we've seen increased demand for our BPO services in the F&A and HR areas.

We're also seeing strong demand for ERP services and for IT consulting services in North America.

The diversity of clients in our product operating group gives us our biggest opportunity to expand our market share.

Let me comment briefly on our contracts with the National Health Services in England, the NHS.

The aggregate losses on the NHS contracts this year were within our previously disclosed range.

We also continue to expect these contracts to turn the corner in fiscal 2007.

Going forward, the anticipated effect of these contracts is built into our business outlook.

Now looking at our geographic regions at the beginning of the year we announced a program focused on improving our financial performance in the United States.

I'm pleased to say that the success of this program contributes significantly to our strong performance not only in the U.S but also in the Americas region.

In the fourth quarter the Americas grew 22% in U.S. dollars and 20% in local currency.

Our U.S. business grew 21% in the quarter, for the full fiscal year the Americas grew 8% in U.S. dollars and 7% in local currency, with the U.S. growing 8% as well.

The performance in the Americas was driven by improvements in our consulting business in the U.S. and by strong performance in both financial services and product.

In our Europe, Middle East, and Africa region, or EMEA we had industry leading growth in an area where many of our competitors have cut back.

EMEA revenues grew to 1.81 billion in the quarter, an increase of 9% in both U.S. dollars and local currency.

For the full fiscal year EMEA revenues were 7.81 billion, an increase of 19% in U.S. dollars and 12% in local currency.

In Asia Pacific, revenues in the fourth quarter were 284 million, an increase of 10% in U.S. dollars and 6% in local currency.

For the full fiscal year, revenues in Asia Pacific were 1.1 billion, an increase of 14% in U.S. dollars and 9% in local currency.

We see significant opportunity for growth in this region and our leadership team will be traveling to Asia later this month to launch a series of new growth initiatives.

Now let me comment on three of the operational drivers that give us an opportunity to further improve our performance.

Leveraging our people, reducing our SG&A, and growing our growing our global delivery network.

We continue to grow our headcount, manage attrition to our targeted levels, and maintain consistently strong utilization rates.

Headcount at year end was just over 123,000, a net increase of 20,000, or 19%.

We continue to recruit aggressively across all major markets and in key locations to meet demand for our services.

Attrition continues to be stable at just under 18% which is in line with our second and third quarters.

Utilization was 82% for the quarter.

This is the 10th consecutive quarter with utilization above 80%.

For the full year, utilization was 84%.

We also continue to focus on SG&A costs, and we're targeting 100 basis point year-over-year improvement as a percentage of revenues.

Now last quarter I talked about a decision we made on our offshore strategy to dramatically expand our global delivery network.

We now have over 35,000 people in the network globally including more than 16,000 in India.

The rapid expansion of our global delivery network has given us the opportunity to ramp up our activities in the application outsourcing area and we recently piloted a sales campaign in financial services that resulted in more than $200 million in new bookings in North America.

Given the success of this campaign we now plan to roll it out to other operating groups and geographic regions.

And we're also actively recruiting sales directors to support the program.

In closing, our progress is driving our operational agenda across the organization and has contributed to our strong performance this year.

I'm extremely pleased with the steps we've taken and the success we've had this year, and we will continue to focus on operational excellence, enhancing our margins and driving profitable growth.

Now I'll turn the call back to Mike for our business outlook.

Turning now to our business outlook.

For the full fiscal year 2006, we are targeting new bookings in the range of 19 to $21 billion.

For the first quarter of fiscal year 2006, we expect revenues to be in the range of 4 to $4.2 billion.

For the full fiscal year we expect revenue growth to be in the range of 9 to 12% in local currency.

U.S. dollar revenue will fluctuate with foreign exchange rates.

Let me reiterate that our forward revenue trajectory of 9 to 12% in local currency remains unchanged.

Acknowledging that our new bookings were at the low end of the range for 2005 we are comfortable with our outlook for revenue growth for 2006 because of the strength of consulting, the strength of our pipeline, and our forward revenue coverage.

We expect our annual effective tax rate for fiscal year 2006 to be in the range of 35 to 38%.

We expect operating cash flow to be in the range of 2 to $2.2 billion, property and equipment additions to be $450 million.

And free cash flow to be in the range of 1.55 to $1.75 billion.

Now let me comment on earnings per share.

In accordance with FAS 123R, as of September 1, we will expense stock options and employee equity -- employee stock purchase plans.

For the first quarter of fiscal year 2006 we expect diluted EPS to be in the range of $0.32 to $0.34.

For the full fiscal year we expect diluted EPS to be in the range of $1.45 to $1.50.

To help put our EPS guidance for 2006 in perspective let me explain the adjustments that are necessary to do an apples to apples comparison between fiscal 2005 and fiscal 2006.

Our GAAP EPS for fiscal year 2005 was $1.56.

To create a baseline for fiscal year 2005 start with $1.56 and adjust for two items.

First, the reduction and reorganizational liabilities contributed $0.12 to earnings for a fiscal year.

Secondly, if we had expensed stock options in ASPP programs in fiscal 2005 the annualized impact would have been about $0.16 per share.

Backing out these two items from the 1.56 results and $1.28 as the comparable EPS baseline.

Our expected 2006 EPS of $1.45 to $1.50 represents growth of 13 to 17% over the comparable 2005 baseline.

Finally let me comment on our operating margin.

Just as you did with EPS we'll work back to create a baseline for 2005.

After adjusting for reorganization benefits we achieved operating margin of 13% for the full fiscal year 2005.

If we had been expensing options in the fiscal year 2005 our adjusted operating margin would have been 11.6% for the full fiscal year.

Think of 11.6 as the baseline for 2005.

We expect our 2006 operating margin to be in the range of 12 to 12.5% for the full fiscal year.

This represents a year-over-year margin expansion of 40 to 90 basis points.

This is an annual target.

We expect some quarter to quarter fluctuations.

Let me turn it back to Bill.

Thank you, Mike.

Before we open it up for questions let me summarize quickly.

We had a great fourth quarter and solid performance for the full fiscal year.

Looking ahead to 2006 we are confident that we will have another strong year.

We expect 9 to 12% revenue growth in local currency, EPS growth of 13 to 17%, and operating margin expansion of 40 to 90 basis points, and we've proven that we have a distinctive ability to generate cash.

With our shareholders in mind we are returning cash to shareholders through our share repurchases and the initiation of the dividend.

We are on a steady growth trajectory.

We are seeing a great deal of momentum in the marketplace and we have a number of exciting initiatives underway that will fuel growth and profits into the future.

Now let's take some questions.

Okay.

Thanks, Bill.

We'd like to give more people an opportunity to ask questions.

So if you could please we'd appreciate if the you could limit yourself to one question.

If you have more you can circle back into the queue.

Okay, operator, I think we're ready, please.

[OPERATOR INSTRUCTIONS] Your first question is from the line of Lou Miscioscia with Lehman Brothers.

Please go ahead.

I'll try to stick to my one question.

I guess a topic I'd like to go into a little bit more depth on is India.

Can you just go into how fast you think you could possibly grow this area and I guess one of the things I hear of consistently talking to investors is that it could be cannibalized to your current business, current revenue stream.

Maybe if you could explain whether this would actually be or not be the case?

Yes, Lou this is Steve Rohleder.

Let me just comment on that.

First of all, to give you some context, for the last quarter we are hiring, on average, 1500 personnel into our global delivery network to support our Indian operations.

And frankly we're going to maintain that trajectory going forward.

On the cannibalization point, the work that we're going after frankly, to expand the global delivery network is not targeted at cannibalizing our existing systems integration or AM work.

In fact there's really two focuses.

First of all, it's to extend our presence and go after work that we normally wouldn't have gone after in our typical routine business cycle.

So application management work for example at existing clients of ours is going to be a focus, and we've already seen the results of that in financial services.

The second area is, with the hiring of our business development directors to go after white space, and new clients, frankly, that we have not been able to tap into and provide application management services.

The idea there is to sell new work obviously but also once we're in those clients to extend and cross-sell our services.

Okay.

For the existing clients we were arguing systems integration work.

There wouldn't be the situation where some of them would like to take advantage of the lower cost to India or has it already moved out there correspondingly?

There's some opportunities in our existing clients, where there were smaller AM deals.

Frankly, while we were scaling the GDN that we did not go after because we wanted to make sure that we had a scalable business that could provide value.

We now feel like we've crossed that threshold. [AUDIO DIFFICULTIES] smaller deals at our existing clients.

Okay.

Thank you.

Your next question or comment is from the line of Adam Frisch of UBS.

Please go ahead.

One question.

That's tough.

But I'll try it.

Your guidance for '06 seems pretty solid given some uncertainties in the global and U.S. economies but if you could provide us with some more color in both the consulting and outsourcing segments in terms of what your projections are based on and what could make them better or worse than the guidance levels that you're providing today.

Well, Adam, this is Bill.

We spent a lot of time looking at this quite frankly, and actually feel very good about looking ahead.

Some of the metrics that we look like are activity level, our pipeline is up 23, 4% from what it had been before.

Our win rates are good.

The core consulting work continues to accelerate in a dramatic way, and that's work that converts to revenue 24 hours later so we feel excited about that.

Then one of the other things I think that's hard to put your finger on is the quality of the pipeline.

We've been able to be selective.

We've been able to improve the economics of the deals that we've signed this year, and we feel great not only about the pipeline and its volume but maybe just as important the quality of that pipeline.

Okay.

Just more of I guess as a joke, but I guess it could be considered a question, is the dividend quarterly or is that an annual number?

It's an annual number.

I figured I'd try.

All right, guys, thanks.

Great job.

Your next question or comment is from the line of Bryan Keane of Prudential.

Please go ahead.

Bill, when you said you were going to grow the America program I figured it might take a little while to turn around that organic growth but I guess I'm surprised at how quickly that organic growth jumped.

I think it was maybe 4% in constant currency year-over-year last quarter, now we're talking about 20%.

Can you just help me understand how something like that could turn so quickly in such a big company?

We're an interesting place.

I always say when we have the will and resolve to do something there's nothing we can't do.

Steve Rohleder has taken personal oversight responsibility for that.

We've had some leadership changes in the United States to add more power to the capability we have there.

And we set higher internal targets that we challenge our people to work to.

That intersected with what we see nice momentum coming back in the marketplace.

I think Steve mentioned in resources, the renewal of technology coming through, the work in products continues to be good, and our financial services business, which is a very profitable and prominent piece of Accenture, has just come back like gangbusters.

So I think we've got two things going on.

One is our internal focus and our will and resolve to get the most out of that opportunity, and the second is the market showing signs of good strength and vitality.

Just a follow-up to that, I think Steve mentioned consulting business in the U.S. has really popped.

Maybe you can break that out between business consulting and systems integration.

Are both those areas doing well?

Then maybe just a comment on pricing and consulting.

Are you seeing some leverage there?

Yes, Bryan.

Both business consulting and systems integration has popped in the U.S., and I'd point specifically to the communications area for business consulting, and the SI area is really expanding both in financial services and in resources, specifically in the utilities area.

So it's going across the board.

We've also had a lot of support from the government operating group in the outsourcing area.

With the closing of Texas that certainly helped, and we're seeing a number of other large outsourcing opportunities there.

So it's really across the patch.

We've got all five of the operating groups working very well together.

Are you seeing any leverage on pricing, Steve?

Yes, pricing is stable still.

It's up a tad from year on year.

But it's stable, and it's in line with what we've targeted, frankly, for consulting work.

Great.

Thanks a lot.

Congratulations on some solid results.

Thanks.

The next question or comment is from the line of Gregory Gould of Goldman Sachs.

Please go ahead.

Thanks.

I just wanted to get more of a sense for the pickup in the U.S.

Should we expect this kind of 20% growth to continues for the next couple of quarters?

I guess as the Texas contract ramps and the Grow America campaign pays off?

Well, I would tell you, Greg, that's our intention.

We're going to work hard at it.

I guess the thing that's most encouraging to me is the nature of the things that has fueled the growth are positive medium to longer term things, very large assignments.

Some of them around the merger and acquisition activity that's going on in the market which not only fuels core consulting but downstream activity.

A lot of it around sort of traditional ERP opportunities that are in the 50 to $100 million kind of range, and we're seeing those a lot more routinely.

So we feel good about the momentum, and we're just getting our year started here, and I would just tell you there's a lot of energy in the United States to sort of reestablish itself as a big part of this company.

And I think we're benefiting from that.

We're working real hard at it but the market is coming our way.

How much of the 19 to 21 billion in bookings should come from consulting, just a rough range?

We look at bookings, basically I look at consulting, the book to bill, somewhere between the 1 and 1.1 range so you can take that and kind of do the math.

Okay.

Good job.

Thanks, guys.

Thanks, Greg.

You have a question from the line of Andrew Steinerman, Bear Stearns.

Please go ahead.

Hi, gentlemen.

Could you just review some of the sources of that operating margin expansion that you're targeting this year?

Are counting on one bucket?

Or do we have multiple buckets of opportunity?

Could you specifically address gross margin and SG&A separately?

Yes, I'll talk about some of the expansion areas because one of them touches on SG&A, Andrew.

Obviously what we want to do, as I said earlier, is focus on trying to gain a 100-basis-point improvement year on year.

There's a couple of activities underway there right now.

First of all, as we grow revenue we want to make sure that our fixed costs don't expand proportionately so we've got to focus on that.

Secondly we have an effort underway in all of our business practices areas to see if there's lower cost ways of providing services to our organization, and that may include some offshoring of certain functions in our finance and HR areas.

I would also tell that you the expansion has to be tied to improvements in quality.

We did make some progress this year in lowering our cost of quality even within NHS, and we're going to continue to push that agenda as we train more and more quality assurance partners and drive some of the quality activities into our business.

We've also made decisions on standardization of tools and techniques that will be rolling out to the organization.

Finally, on pricing, I think, as I said before, the important part is that we've seen the stabilization in consulting pricing.

However, we're still looking for opportunities to ratchet that up in areas where we have a very unique either asset or capability, and we're going to continue to push that going into next year.

The final one I'd mention is expansion around our global delivery network.

And that really focuses on continuing to expand and using lower cost resources at higher margins to mix in with the work that we're selling going forward and that we're doing right now.

So those four areas is what I'd focus on, Andrew.

Right.

And is that enough to keep gross margin stable, or up, or where do you think gross margins could be within those drivers?

Well, within those drivers, this is sort of a sidebar, recognize that the lion's share of the option expense winds up in the gross margin calculation, so you have to understand that point.

But having said that, we would expect some gross margin expansion as we take down the cost of services and deal with the pricing issue in terms of some of elasticity on the consulting side and I think the rationalization has occurred on the outsourcing side.

So you would expect some gross margin expansion even with the annual bonus that you're going to be accruing in fiscal year '06?

Yes, not -- it would be modest, but that would certainly if we're going to take down cost of service is it has to come back through gross margin.

Sounds great.

Thank you.

You have a question from Moshe Katri of SG Cowen.

Please go ahead.

Thanks.

Nice quarter guys.

Just a follow-up, I don't know if you've mentioned the variable comp assumptions for fiscal '06 what should we expect there?

Then you spoke a bit about NHS.

Are there any specific milestones on NHS that we have to look for going forward?

Thanks.

Moshe, Mike, on the variable comps, you may recall that we told you at Q3 that we were no longer going to comment on variable comps post this call.

We've, with input from many of you have found it counter productive and we've in fact replaced what you would know as the variable comp program with an annual bonus plan somewhere to sort of the corporate world, and as a piece of our total comp and we're not going to split it out going forward.

Yes, and I'll touch on NHS just real quickly, Moshe.

First of all, we're on track, there are no major milestones out there that we want to highlight.

In fact, frankly, moving forward, just as Mike talked about the annual bonus, we're not going to comment on NHS because we have included that in our guidance.

And as you might remember, this year when we made the decision in Q2 to announce we had not included any variances in our guidance.

So we've included that going forward.

The program is on track.

We're now serving over 2 million patients in 2500 healthcare professionals.

The things that we've put into place after Q2 I think have taken hold.

Then, Steve, you've indicated that you have about 16,000 people in India today.

Do you have a specific projection in terms of where that number goes to in fiscal '06?

No, I don't.

We're going to let the market drive that, to be honest.

Thanks.

Next question is from the line of David Togut with Morgan Stanley.

Please go ahead.

Thanks.

Could you be a little bit more granular in your outlook for pricing in '06?

I think earlier in the year you talked about 200 basis points, then I think a 100-basis-point increase on the previous call, now you're saying stable.

Can you drill down into that a little bit and then together with that give us some sense for what wage increases will be in '06?

Yes.

I'll start with the last part, David, on the wage increases.

And this is difficult because of all the geographies and the different work forces that we have but basically for the year, we implemented a 6.5% increase in our salaries across the board on average, again.

That resulted in about a 2% increase to our cost base, which we believe we'll be able to recoup through pricing increases starting in September in Q1 of this year.

Overall, again I'd say that the pricing upside that we have is really focused on the areas that we can bring a very unique asset and gain more margin to our clients, and the second area is around some very key consulting capabilities that we bring in that we can command a premium to, and the organization is operating under both of those assumptions, and frankly, as long as we stay within the range, we're going to continue to push it up in those specific areas.

Then a quick question for Mike.

On the '06 outlook what are your assumptions for share count?

You have this big Dutch tender outstanding.

Are you assuming a significant reduction in share count in the '06 outlook?

David, as far as the Dutch tender none of that in fact has been factored into the guidance.

The reason being that we won't know until it closes next week just exactly how many shares people want to sell.

We will update you at Q1 as to what got repurchased through that particular offer.

As far as our ongoing share purchase activities, I mentioned we had an authorization outstanding for $1.7 billion.

I would anticipate that we would utilize that authorization over the next 12 to 18 months.

Okay.

Thank you.

You have a question from Cindy Shaw of Moors & Cabot.

Please go ahead.

Great, thanks very much.

You've talked about pricing improving over a year ago and then stabilizing.

I'm wondering if the price improvements are fully reflected in the revenue from the most recent quarter and -- or if we're going to see that continue to sort of help margins and revenue growth?

Well, I think I'll start.

Steve can come in.

As I said, we're seeing some elasticity in the consulting side as -- in a services marketplace, generally speaking if you have high value service the buyer recognizes that as the cost goes up that the price goes up, so on the consulting side we're able to work that dynamic.

On the outsourcing side over the last couple of years, the thing has rationalized itself.

Our book of business is very strong and our outsourcing profits are quite good.

So I think from that standpoint, clear that had an impact in Q4, and we expect that we will be fully able to recover the pricing -- the cost -- the payroll cost increases we have as we move forward through '06.

Cindy, the only thing I'd add is that I do think that because of the work that we focus on in terms of pushing up the margins it's really around consulting, some of that has worked its way through the quarter and you'll see it continue to work its way through in the next two quarters.

So we've got a little bit more just to flow fully into the portfolio to come here?

Yes, it's tough to say how much, but the range work that we had at the higher margin levels will still be working its way through.

Great, thanks very much.

You have a question from the line of Rod Bourgeois of Bernstein.

Please go ahead.

I'm sure you'll be surprised I would like to talk a little more about what's happening with your offshore business and the effect the offshoring trend is having on your economics.

I guess sort of two piece to it.

You've indicated that consulting pricing is stable, and I guess what would be helpful to understand, are you seeing some pricing pressure in the consulting business as the Indians move up the food chain?

Then that pricing pressure is being offset by positive mix shift in other aspects of your consulting business.

Is that dynamic going on?

Where there is pressure in certain aspects but you're seeing positive mix shift?

Then just in general can you comment on whether your offshore work, the stuff that you're using your global delivery network on, is that, are the margins on that work above corporate average margins?

Yes.

First of all, we don't split them out, Rod, so I'm not going to comment on the last part in terms of offshore.

I would tell that you we are pleased with the mix of work that we have there on the consulting pricing pressure, we've not seen the pricing pressure generally speaking across business consulting in the SI market, from the Indians specifically.

Where we see pricing pressure typically is in the very basic application management and application outsourcing arena.

That's where they typically go head to head and compete on a price basis.

But for the business consulting and SI work, we have not experienced that.

Okay.

Great.

Guys, on the NHS contract, can you say anything more about that?

I'm not completely comfortable not having any visibility into -- to what extent you can lower your loss next year, is there a target date for break even on that contract?

Any additional color on that would be helpful, given , the controversy that that contract has represented.

Sure.

We said we were going to turn the corner in '07.

The losses will be less the next year.

One of the things that's important for us is to make sure, Rod, that we respect the confidentiality of the client and what's happening day in and day out, certainly on a contract that is that highly visible.

As I said before, it was very important for us to get this in our guidance going forward.

It is in the guidance.

We took exception to our typical policy in terms of talking about clients because this year frankly, it wasn't in our guidance, and we felt like we had to disclose it.

So really we're returning to a policy that we've had for a long time.

All right.

Thanks, guys.

Your next question is from the line of Pat Burton of Citigroup.

Please go ahead.

Congratulations on the quarter.

My question is for Mike.

Mike, the dollar amount of stock option expense is that going to be consistent with what you outlined in the Q last quarter?

This is an interesting area.

It's probably going to cause, as we try and all adopt to it, we're talking about this, some confusion and probably some consternation.

Just to give you some background, our intention going forward is to report fiscal '06 on an actual basis with all-in equity expense and basically restate '05 as to what the option expense in '05 to do a comparative on the growth as we did in our EPS calculation.

As this thing has moved on we don't have a direct compare as to a number that you would relate to, as quote, option expense in '06, because as the thing moves forward we took the opportunity to overhaul all of our equity programs as we were putting in another concept of trying to get our senior executives with the incremental equity compensation as a piece of their package to further align our executives with shareholders.

So basically we don't have a comparable number for fiscal '06 for something called option expense.

We have a number in '05, and '06 is an all-in equity expense number.

Is it fair or unfair to say the dollar amount of those programs in '06 is roughly the same as in '05, or will the expense actually be less in '06 than in '05?

It is fair to say that on an all-in basis the equity expense between the earnings is comparable.

Is comparable.

Okay.

Thank you.

Next question is from the line of Brandt Sakakeeny of Deutsche Bank.

Please go ahead.

Thanks.

Congratulations also on the quarter.

Question for you on the headcount.

You've talked about the global delivery channel headcount increases.

What other -- and can you give us the absolute number of headcount increase that have to occur outside of that channel and just can you comment on sort of how those hiring pipelines look and any wage inflation that you're seeing?

The hiring pipeline is still strong.

It's obviously, been driven by the demand in the marketplace.

We've put projections on the table and we constantly revise those on monthly basis depending on the demand for work that's coming into our pipeline and where we want to source that work.

So we hired 42,000 people this year.

There's no indication that I see that has us pausing or ratcheting that number down going forward.

Okay.

And are you seeing any scarcity of labor just in the markets in which you're pulling people, either out of school or out of the MBA school?

No, we really aren't.

I think the Accenture brand really is attracting the same level of people, the right skills at the right time with the right place, and I think frankly we've had no problem at all attracting people to Accenture.

Great.

Thank you very much.

You have a question from Ed Caso of Wachovia Securities.

A while back, say, a year or so ago, you spent a lot of time talking about various utilities that you were building, F&A procurement, HR, and so forth.

Was that -- did you sort of allude to that in your sort of more value offerings?

Can you talk a little bit about where that stands in the strategy?

Sure.

I'd separate it, Ed, into two buckets.

First of all, the horizontal BPO offerings that we have out there, primarily around Accenture HR services, financial services, and procurement services.

And we're seeing strong growth in that area.

We've made investments in those assets this year, and we're going to continue to push for growth in those areas.

The second area is vertical BPOs.

I'll just describe a few of them that we're looking at expanding as we move forward.

First of all, Navitaire which is a stable, mature business supporting the airline industry.

Our Accenture business services for utilities organization which is focused on supporting the back office of utilities.

Accenture insurance services, and an emerging demand for eligibility services in the government space.

So we're focused on both areas.

We obviously want to penetrate the horizontal market but we also want to grow some of the vertical BPO organizations.

Is this one of the areas you think you can get better pricing, better margins out of?

Yes.

Great.

Thank you.

You have a question from George price of Legg Mason.

Please go ahead.

Thanks very much.

Hit a lot of the topics.

I guess just maybe a couple of mini questions on some assumptions.

First, Mike, if you could discuss maybe why the tax rate is ratcheting up in fiscal '06 and then also maybe -- I don't know if you gave us the specific currency head wind number as you see it now.

On the tax rate, we pay taxes in hundreds of jurisdictions and our overall tax rate is a composite of the revenue profits in those jurisdictions.

Having said that, in fiscal '05 the tax rate benefited from a number of things.

The reorganization release benefit of the tax rate.

We had some one-time things in the tax filings that happened to come forward on a positive basis, and go forward, going forward into fiscal '06.

The increase of our equity expense resulted in some tax in jurisdictions as a potential non deductible item.

So another whole add is that we are anticipating a higher tax rate in '06 than we had in '05.

Obviously if we continue to manage it as we go forward quarter by quarter, but as we see it is how we reported our guidance.

As far as the FX, it's hard to say exactly what the dollar is going to do or the currency is against the dollar.

Right now some seem to be going up, some seem to be going down.

Having said all that, I think the fair assumption would be a 1 to 2% head wind, depending on.

Maybe one last thing just on the DSOs.

I think they might have ticked up a little bit.

Can you talk maybe about what your expectations are going forward on an -- on an all-in billed and unbilled basis?

Well, our objective remains in the 40s.

Thankly we finished in the 40s, albeit a couple days higher than in Q3 but nevertheless I think as our vision expands that's a fine number.

Last year you will remember in Q1 our DSOs ticked up.

We're on the case to try and manage that go forward.

Our objective remains in the 40s.

Okay.

And that when you're talking in the 40s, you're talking about less deferred revenue?

Yes, I'm talking about all in, the sum of receivables, unbilled services, client financing, and deferred revenue.

Okay.

Thanks.

You have a question from Greg Smith from Merrill Lynch.

Please go ahead.

Yes, hi.

Looking back a year ago the bookings target was obviously 18 to 20, now we did come in at the low end of the range, I'm just wondering, thinking about it, what sort of caused that in hindsight?

Was it just the overall market?

Smaller deal sizes?

Or something else we should be thinking about?

Well, at the broadest level, consulting came in above what we expected in that mix and outsourcing came in below.

As the outsourcing market took that -- just a pause, a reflective period, and outsourcing bookings were a little bit lower than I expected, but consulting bookings were very strong.

Yes, I think it's important.

The consulting bookings story is a really powerful one.

Frankly, around here we're really excited by it.

I'd also mention, last year we had the NHS, one big rock that landed in our bookings, and, frankly, we think we have a lot more -- the quality of our bookings this year is dramatically better than last year, and I can't tell you how many measures we have that we look at that when we look at the deals we approve by the capital committee and all of those things.

If you take the quality of the bookings, the fact that there are more outsourcing deals that are small and medium sized as opposed to these big winner take all things, and you look at the acceleration in consulting, we feel very good about the number.

That said, we are very focused on driving additional bookings for this year, and we expect to come out of the gate in a solid way on that.

Great.

Thank you.

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

Thank you.

Your final question is from the line of Tien-Tsin Huang of JP Morgan.

Please go ahead.

Thanks it's Tien-Tsin.

Just had a question related to the partner share tender.

Of the shares outstanding can you sketch out for us the mix among active partners, retired partners, other employees, and I guess publicly held shares?

Just trying to better understand the composition and how the shares might flush out going forward.

Well, the tender offer is for a maximum of roughly 37 million shares which we would anticipate, we don't know what the demand will be, but we'd anticipate that the lion's share of the demand would come from retired partners, particularly those who have stock restricted in 2009.

As far as the exact mix of the pieces you cited, active partners would be somewhere in the 30% range of total stock, the retired bunch would be another 20% percent and the rest would be in the public, in the roundest of numbers.

Okay.

Great, that's helpful.

Our IR group can give you the specifics but that's -- I gave you the generalities.

Can you quickly walk us through the processes to arrive at the price range for the Dutch tender?

We took a look at we wanted a transaction that was balanced, that it was accretive to the Company, and was also attractive enough to the prospective tenderer that it would be of interest to them.

Fundamentally, we ran the capitalize and pricing model and found a discount rate that seemed to balance both those and that's how we priced it.

Okay.

Thank you.

Let me just wrap up here.

In closing, thank you for all for attending.

In closing I feel very good about our business, our performance in the fourth quarter and the full fiscal year, and our outlook.

Our theme of high performance delivered continues to be a powerful differentiator for us in the marketplace and no competitor on that dimension even comes close.

We have outperformed our competitors on most dimensions.

We have met our commitments to shareholders and we've made good progress against our strategic priorities.

I am encouraged by the growth we are seeing, particularly the continued momentum in consulting.

The rebound in our Americas region demonstrates the focus and power we can apply to our markets.

Our business outlook is positive, our pipeline is expanding, and our aggressive recruiting continues to attract the best people around the world.

We are confident that there's a great deal of opportunity for growth, and we can see it.

I just came back from a meeting in Frankfurt, Germany, where 250 of our most senior executives came together from around the world to talk about growth.

And our strategy and actions to achievement.

I can tell you that coming out of that session I am more excited than ever about our business and our growth prospects.

There was tremendous energy in the group and our people are ready to take Accenture to the next level.

A year ago Mike, Steve, and I all came into our jobs as the new senior management team at Accenture.

We set ambitious objectives for ourselves and our people to grow, to serve, to execute, and to deliver.

I am very proud of the way we have come together over the last year to achieve our goals and fulfill our obligations of -- as stewards of this great organization.

We have kept our clients, our people, and our shareholders at the forefront.

We have good rhythm as a management team and have demonstrated our ability to deliver consistent results over time.

And we look forward to seeing you and sharing more about our business strategy with you in New York on November 16, for our annual investor and analyst meeting.

Until then I want to remind you that Steve, Mike, and I, as well as our broader leadership team, are available and happy to talk to you.

Please give Carol a call to make any arrangements.

And again, thanks for joining us today.

Thank you, operator.

Would you like to have the replay information given out at this time?

Please, that would, I'm sure, help the group.

Thank you.

Thank you.

Ladies and gentlemen, this conference will be available for replay from 9:45 p.m. eastern time tonight until midnight on October 20.

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That number again is 1-800-475-6701, with the access code of 796108.

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