埃森哲 (ACN) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Accenture's fourth quarter and full-year fiscal 2006 earnings conference call.

At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions are as follows. [OPERATOR INSTRUCTIONS] As a reminder, today's conference is being recorded.

I would now like to turn the conference over to Mr. Richard Clark, Managing Partner of Investor Relations. Please go ahead.

Thank you, Operator, and thanks, everyone, for joining us today on our fourth quarter and fiscal year 2006 earnings announcement.

As the Operator just mentioned, I'm Richard Clark, Managing Director of Investor Relations. I'm delighted to be joining you today for my first earnings call in this role.

With me this afternoon are Bill Green, our Chairman and Chief Executive Officer, Mike McGrath, our Chief Financial Officer, and Steve Rohleder, our Chief Operating Officer.

Pam Craig is also joining us today. As many of you know, Pam is currently our Senior Vice President Finance and will succeed Mike as our Chief Financial Officer on October 31st.

We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call.

Bill will begin with an overview of our results, Mike will take you through the financial details, including the income statement and balance sheet, and Steve will add some operational perspective. Pam will then provide our business outlook for fiscal 2007, and Bill will close the presentation before we take questions.

As a reminder, when we discuss revenues during today's call, we're talking about revenues before reimbursements, or net revenues. Some of the matters we'll discuss in this call are forward-looking and you should keep in mind 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 discussed under the Risk Factors portion of the Business Section of our Annual Report on Form 10-K and other SEC filings. Accenture assumes no obligations to update the information presented on this conference call.

During our call today, we may reference certain non-GAAP financial measures which we believe provide useful information for investors and you can find reconciliations of those measures to GAAP on the Investor Relations page of our Web site at accenture.com.

So now let me turn the call over to Bill.

Thank you, Richard, and good afternoon, everyone.

We are very pleased with our fourth quarter and full-year performance which clearly shows our continued strength and momentum in our business. Just as important, we are glad that we've been able to resolve our issue with the NHS contracts in a manner that is in the best interest of all parties, including Accenture and our shareholders, and puts this matter behind us while we continue to help the NHS with its mission.

As I told you last quarter, I have been personally overseeing our efforts to resolve the NHS issue and with a great team on the ground we were able to do just that. Mike will provide a bit more detail around the financial impact of the agreement announced today, but let me just say that while the agreement resulted in a negative impact on our fourth quarter revenues, that impact was offset by a corresponding decrease in cost of services, so there was no impact on operating income and EPS in the fourth quarter.

Before I turn the call over to Mike, let me just give you a few highlights of the extremely strong performance we delivered in the quarter and the full-year. We delivered record annual revenues of $16.65 billion even with the adjustment related to today's agreement. We exceeded our EPS outlook for both the quarter and the full-year.

We generated tremendous free cash flow of more than $700 million in the quarter and nearly $2.4 billion for the full-year. We delivered strong quarterly bookings of close to $5 billion as well as our highest ever annual bookings of $20.4 billion, which was at the high end of our targeted range.

We're particularly pleased that more than half of our new bookings in both the quarter and the full-year were in consulting, which continues to show great momentum. And on the people front, we continue to grow headcount, our attrition is stable and our utilization remains strong.

We also demonstrated our commitment to return cash to shareholders, repurchasing more than $2 billion worth of our shares this year, and just today, announcing our second annual cash dividend. All in all, our performance in both the quarter and the full fiscal year demonstrates the overall strength and momentum of our business.

Now, let me pass it over to Mike who will provide more detail on our financial performance.

Thanks, Bill, and good afternoon.

Our financial results for the fourth quarter and fiscal 2006 speak to the continued strength of our business with strong bookings, tremendous cash flow, and a solid bottom line.

As you know, earlier today we announced a resolution of the issue we had with the NHS contracts by entering into an agreement with the NHS and CSC. We're pleased that the agreement brings certainty to the situation. Our team on the ground, supervised directly by Bill, did a great job resolving the issue and we are pleased that we've been able to do this in a way that puts the matter behind us and allows us to continue to work with the NHS to support their mission.

Although the agreement resulted in a reduction in revenue of $339 million in the fourth quarter, this was offset by a corresponding decrease in cost of services. As a result, there was no impact on operating income or EPS in the quarter.

Going into a little more detail, the resolution announced today is covered by a tri-partied binding agreements that conclude all material matters of contention associated with the contracts. The agreement takes the form of a novation, which means that CSC will assume Accenture's responsibilities and obligations for covered services under the NHS program in eastern and northeast England.

As you will recall, the portion of the contracts related to deployment was accounted for under the percentage of completion method. And the portion of the contracts related to services was accounted for on an as earned basis. The reduction in revenues and the corresponding decrease in cost of services primarily reflect the true up of the percentage of completion method of accounting to the terms of the agreement announced today and recorded as a part of our Q4 close.

Under the agreement, we will provide transition services, which we will complete during the second quarter of our 2007 fiscal year, in connection with the transition and wind down of the work related to the agreement, we now expect a loss of approximately $125 million in fiscal 2007, which is less than we had previously anticipated.

Also, as stipulated in the agreement, we will return to the NHS approximately $120 million, which reflects a final true up of our cash position to terms of the agreement. Let me emphasize that there are no, I repeat, no, penalty payments associated with the agreement.

With that context, let me take you through the income statement, balance sheet, and cash flow providing some detail behind the numbers for the quarter and the year highlighting the areas impacted by the NHS resolution.

Net revenues for the fourth quarter were $3.97 billion compared with $3.92 billion for the fourth quarter last year. This includes the reduction of $339 million all of which affected consulting type revenues.

Breaking revenues down by type of work, consulting accounted for $2.2 billion, or 55% of total revenues in the fourth quarter, a year-over-year decrease of 9% in local currency and 8% in U.S. dollars. Absent the impact of the NHS agreement, consulting net revenues for the fourth quarter were $2.53 billion, an increase of 5% in local currency and 7% in U.S. dollars.

Outsourcing accounted for $1.77 billion, or 45% of total revenues, an increase of 12% in local currency and 14% in U.S. dollars. Net revenues for the full fiscal year were $16.65 billion, an increase of 9% in local currency and 7% in U.S. dollars.

Breaking down full-year revenues by type of work, consulting accounted for $9.9 billion, an increase of 6% in local currency and 3% in U.S. dollars over fiscal 2005. Outsourcing accounted for $6.75 billion, an increase of 14% in local currency and 13% in U.S. dollars over fiscal 2005.

In summary, these revenue results are consistent with our medium-term objective of revenue growth on a 9 to 12% local currency trajectory.

As you know, last September we began expensing stock options and employee stock purchase plans. Another item that sometimes affects our year-over-year comparisons is a reduction and reorganization liabilities which were established in connection with Accenture's transition to corporate structure in 2001.

As I have done before, I will provide year-over-year comparisons using numbers adjusted for both options and reorganization liabilities. This will give you an apples-to-apples comparison. You can find a reconciliation to GAAP figures in our news release on the Investor Relations section of our Web site and in the financial statement in the 10-K we intend to file in October.

Now let me take you through the rest of the income statement. Gross margin for the fourth quarter was 34.1%, which compares with fourth quarter fiscal 2005 gross margin of 33% on a GAAP basis. Excluding the impact of the NHS agreement in the fourth quarter, gross margin was 31.4% compared with 31.3% on an options adjusted basis for the fourth quarter last year.

Gross margin for the full-year was 30% compared with 32.8% for fiscal year 2005 on a GAAP basis. Excluding the net impact of the NHS adjustments during the course of the year, gross margin in fiscal 2006 was 31.6% which compares to 31.4% on an options adjusted basis for fiscal 2005. In short, on an adjusted basis we achieved some gross margin expansion this year.

SG&A costs for the fourth quarter were $844 million, or 21.3% of net revenues. Excluding the impact of the NHS agreement, SG&A costs were 19.6% of net revenues which compares with fourth quarter fiscal 2005 SG&A of 19.8% of net revenues on a GAAP basis and 19.9% of net revenues on an options adjusted basis. SG&A costs for the full-year were $3.2 billion, or 19.2% of net revenues.

Excluding the net impact of the NHS adjustments during the year, SG&A expenses in fiscal 2006 were $3.23 billion, or 19.0% of net revenues. This compares with fiscal 2005 SG&A expense of 19.7% of net revenues on a GAAP basis and 19.8% of net revenues on an options adjusted basis.

GAAP operating income for the fourth quarter was $501 million, or 12.6% of net revenues. Excluding the impact of the NHS agreement in the fourth quarter, operating income was 11.6% of net revenues. This compares with fourth quarter fiscal 2005 operating margin of 13% on a GAAP basis and 11.2% on an options adjusted basis.

GAAP operating income for the full fiscal year 2006 was $1.84 billion, or 11.1% of net revenues. Excluding the net impact of the NHS adjustments during the year and reorganization benefits, operating income for fiscal 2006 was $2.11 billion, or 12.4% of net revenues. This compares with fiscal 2005 operating margin of 13.6% on a GAAP basis and 11.6% on a reorganization and options adjusted basis.

As communicated previously, we had an objective to expand our full-year operating margin by 40 to 90 basis points. Our results on an apples-to-apples basis represent an 80 basis point expansion.

Our effective tax rate for the fourth quarter was 4.5% reflecting the previously announced $143 million tax benefit recorded in June. Our annual effective tax rate for the full fiscal year was 25.5%, within our expected range of 25 to 27%.

GAAP income before minority interest for the fourth quarter was $502 million compared with $363 million, or $314 million on an options adjusted basis for the fourth quarter last year. GAAP income before minority interest for the full fiscal year was $1.43 billion compared with $1.51 billion, or $1.36 billion on an options adjusted basis for fiscal 2005.

GAAP diluted EPS for the fourth quarter were $0.56 compared with $0.38 for the fourth quarter of fiscal 2005. GAAP EPS include $0.01from prior quarter reorganization benefits and $0.16 from the $143 million tax benefit recorded in June. GAAP diluted EPS for the full fiscal year were $1.59 compared with $1.56 for fiscal year 2005 and exceeding our outlook of $1.55 to $1.57.

After adjusting for reorganization benefits, the net impact of the NHS adjustments and the fourth quarter tax benefit, EPS for the full-year were $1.61. This represents a substantial increase over last year's apples-to-apples baseline of $1.28.

Now let's turn to our cash flow and balance sheet. For the fourth quarter free cash flow was $715 million, resulting from operating cash flow of $812 million less property and equipment additions of $97 million.

For the full fiscal year free cash flow was $2.63 billion, resulting from operating cash flow of $2.67 billion less property and equipment additions of $306 million. Free cash flow significantly exceeded the upper end of our expected range.

The increase in free cash flow was mainly due to greater efficiency in billing and collections as evidenced by our days services outstanding, or DSOs, which were 40 days. This represents an improvement of nine days from the end of last fiscal year.

In addition, our capital usage during the year reflects continued efficiency and structuring client contracts as well as some timing differences and infrastructure capital expenditures.

Our total cash balance at 8/31 was $3.07 billion compared with $2.48 billion at 8/31 last year. Cash, combined with $463 million of fixed income securities classified as investments on our balance sheet, was $3.53 billion at 8/31 compared to a $3.18 billion at year-end last year.

Total debt at August 31st was $52 million compared with $75 million the prior year. Our balance sheet metrics remain strong and we continue to outperform our proxy peer group. For the full-year our return on invested capital was 49%, our return on equity was 53%, and our return on assets was 16%.

Before I turn the call over to Steve, I want to comment on share repurchases and dividend activity. In the fourth quarter we purchased or redeemed 9.2 million shares for a total of approximately $260 million.

During the full fiscal year we repurchased or redeemed 83.8 million shares for approximately $2.1 billion. Year-on-year the average fully diluted share count decreased from 961 million shares to 894 million shares.

As of August 31st, we had $1.92 billion of share repurchase authority remaining. Earlier this month, the Board authorized the use of up to an additional $773 million to redeem up to 26.3 million SCA Class 1 Common Shares at a discount through a tender offer that is scheduled to close on October 6th.

I'm pleased to announce that our Board of Directors has declared a cash dividend of $0.35 per share on Accenture Class A Common Shares for shareholders record on the close of business on October 13th. Accenture SCA will also declare a cash dividend of $0.35 per share for shareholders of record of Accenture SCA Class 1 Common Shares at the close of business on October 5th.

Both are payable on November 15th. This represents a $0.05 per share increase over the dividend we paid last year.

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

Thanks, Mike, and hello, everyone.

I'd like to comment on the operational highlights we've achieved across three dimensions of our business: Our operating groups, geographies and growth platforms.

From an operating group perspective, we're very pleased with our performance in products and resources which both delivered double-digit revenue growth and very strong profitability in 2006. In products, the retail industry group posted a strong performance in North America and retail saw very good demand in such areas as customer centricity, operations efficiency, and ERP services.

Our resources operating group further strengthened its position in energy, chemicals and natural resources. Industry groups which each delivered growth in excess of 20% in 2006.

Also noteworthy is financial services. Our increased focus on growth and profitability in this operating group is yielding positive results as demonstrated by fourth quarter revenue growth of 11%.

In terms of our geographies, a major area of focus has been our Grow America program. We committed to re-establishing strong growth rates in the Americas and I'm very pleased that we were able to deliver 14% growth in Accenture's largest geography led by strong expansion in the United States.

Another success story is Asia-Pacific where we achieved record-setting revenues and 20% top line growth. This was driven by strong performance in Japan and Australia and we also continue to build a strong foothold in China.

Let me turn to our three growth platforms, outsourcing, business consulting, and systems integration and technology. The leadership changes we recently announced are intended to strengthen our focus in these three growth platforms.

Within our outsourcing growth platform, there are two areas I'll highlight. First, is business process outsourcing where we continued to expand our offerings and strengthen our delivery capabilities in 2006, further differentiating Accenture in the marketplace.

Our Navitair business, which provides airlines with a range of outsource services had its best year ever and added more than 10 new clients in 2006. Another BPO standout is Accenture HR services, which industry analysts have recognized as a leading player in the HR outsourcing market.

Another highlight in outsourcing is the expansion of our application outsourcing business, where we now have almost 40,000 people serving our clients. We've built an application outsourcing salesforce of approximately 60 sales directors in Europe and North America, which is making significant headway with a new, nontraditional Accenture client base.

In our business consulting growth platform, we've made significant progress over the past year in finance and performance management, supply chain and CRM. 2006 also saw us further expand our business consulting capabilities through targeted acquisitions such as Media Audits and Picasso, which have been very well received in the marketplace.

For our third growth platform, systems integration and technology, a continuing highlight and key competitive differentiator is the Global Delivery Network. At the end of fiscal 2006 our Global Delivery Network had more than 52,000 people, a 50% increase over fiscal year 2005.

We opened six new delivery centers this year, most recently in Bucharest, Warsaw and Riga in Europe, San Antonio in the United States, and [Puni] and New Delhi in India. Together with mature locations in India, the Philippines, China, eastern Europe and the Americas, we now have Global Delivery centers in 30 cities.

Critical to the success of all three growth platforms is having the best people. We ended the year with nearly 140,000 employees, an increase of 13% over 2005 and continued to recruit aggressively across all markets in key locations.

One of our real success stories is in India where we grew by more than 3500 people in the fourth quarter and ended the fiscal year with 23,000 people, a 42% increase over fiscal 2005. Our attrition was stable at approximately 18% for the year. Utilization was approximately 84% for both the fourth quarter and the full fiscal year, the third year in a row we've achieved utilization in the mid 80s range.

Before closing, let me touch on some key operational metrics for the fourth quarter and the fiscal year. In terms of bookings, we had a great fourth quarter with nearly $5 billion in new bookings, consulting accounted for $2.54 billion, or 52% and outsourcing accounted for $2.38 billion, or 48%.

Our strong bookings for the quarter bring our total new bookings for the year to $20.4 billion, at the high end of our targeted range of 19 to $21 billion. This result was driven by record annual consulting bookings of $10.6 billion.

Our pipeline is up both sequentially and year-over-year and we continue to be pleased with both the quality and the economics of the opportunities we're seeing.

To summarize our operational highlights for 2006, our continued improvements in operational efficiency help us drive down SG&A as a percentage of net revenues. We significantly enhanced our go to market capabilities through the growth of our workforce, further expansion of our Global Delivery Network, and the execution of a number of targeted acquisitions.

And finally, we continue to take market share overall as evidenced by our business growth of almost twice the average of our proxy peer group. I'm extremely pleased with our results in fiscal 2006 and I'm very excited by the prospect of continuing this momentum in 2007.

Now let me turn it over to Pam for our business outlook.

Thank you, Steve.

It is a real privilege for me to become Accenture's CFO next month and I'm looking forward to getting to know each of you better. I want to take a moment to thank Mike McGrath for the truly fine example he set for all of us in finance and for the consistently excellent job he has done as Accenture's CFO.

For our 2007 business outlook, we will continue to provide annual guidance in all of the areas we have in the past and we will update you on these measures quarterly. In addition, we have decided that will provide quarterly guidance for revenues so that you have a basis for understanding our growth by quarter during the year.

After consulting with our Board, we have decided that going forward we will no longer provide quarterly guidance for earnings per share. Providing our business outlook in this way brings it in line with how we manage our business, which is on an annual cycle. In particular, we manage to an annual target for EPS.

Now, let's go to our business outlook for fiscal 2007. For the full-year, fiscal year 2007, we're targeting new bookings in the range of 22 to $24 billion.

Turning to revenue, we continue to expect Accenture's business to grow on a trajectory of 9 to 12% in local currency. We do not expect that growth to be even between the quarters.

Specifically, we anticipate slower growth in the first half when we compare to last fiscal year. Right now we are in a period where we are actively redeploying resources from contracts that are winding down, including the NHS to those that are ramping up.

For earnings per share we expect full-year diluted EPS for fiscal 2007 to be in the range of $1.77 to $1.82. This range includes assumptions about our share repurchases, including those we'll make in the normal course, and through our recently announced discount to tender offer. This is a $0.02 increase over the preliminary outlook we provided after the third quarter and reflects our agreement related to the NHS contracts announced today.

Taking a look at operating margin for fiscal 2007, we expect it to be in the range of 12.6% to 13.1%. You should expect some fluctuations quarter-to-quarter as you have seen in the past due to the seasonality of our business. We intend to expand operating margin through continued focus on both cost of services and SG&A expenses.

We will continue to focus on improving contract profitability by working delivery efficiencies, using our improved methods and tools, driving more solutions based on reusing our assets, and sourcing more work to our Global Delivery Network. We are also continuing our program of improving SG&A over multiple years.

Now let's turn to cash flow. For the full fiscal year 2007 we expect operating cash flow to be in the range of $1.95 billion to $2.15 billion, property and equipment additions to be $335 million and free cash flow to be in the range of 1.6 to $1.8 billion. This represents a decrease from what we achieved in fiscal year '06 and let me explain why.

First, we achieved exceptional improvement in our DSOs in fiscal 2006. As Mike mentioned, they went from 49 days in August '05 to 40 days in August '06, which is worth about $460 million. We expect to continue to operate in the 40s in fiscal '07.

Second, there is the impact of the NHS which occurs in the first two quarters of fiscal 2007. We will be repaying monies to the NHS as well as incurring costs to complete the agreement.

Third and lastly, we expect a slight uptick in working capital investment and our capital infrastructure in order to achieve our growth projections. To complete the annual outlook for fiscal 2007 we expect our annual effective tax rate to be in the range of 34 to 37%.

Finally, let's turn to the first quarter of fiscal 2007. We expect revenues to be in the range of 4.45 to $4.65 billion.

In closing, our business is healthy. We expect our bookings, growth trajectory, and profits to continue to be strong. We remain focused on our core financial objectives of revenue leadership, expansion of operating margin, double-digit growth in earnings per share, and a strong balance sheet.

Finally, our goal is to continue to build shareholder value, not only through strong operations, but additionally through actions to return cash to shareholders through dividends and share repurchases.

Thank you. And here's Bill to close.

Thank you, Pam. Before we begin the Q&A, I just wanted to summarize briefly. We are very pleased we were able to reach an agreement with the NHS that allows us to put this matter behind us.

If you stand back and look at it, our business is very strong. We continue to gain market share and outperform our competitors on key metrics including return on invested capital, return on assets, and return on equity. We continue to generate strong cash flow.

The momentum in our consulting business continues, our outsourcing business continues to grow, mature and be distinctive. We are the go-to guys for companies that are committed to improve their business performance. In short, we are very well positioned for even further growth and profitability.

Our results in fiscal 2006, including our record annual revenues, EPS, free cash flow, and new bookings, are a testament to the dedication, expertise and passion of our 140,000 men and women around the world who remain focused on and committed to helping our clients achieve high performance. They're the reason Accenture is the envy of our industry.

Now let's take some questions.

Thanks, Bill.

We'd like to give as many people as possible an opportunity to ask questions. We would appreciate it if you could limit yourself to one question and then if you have additional follow-up items you can circle back into the queue. All right. Operator, I think we're ready, please.

[OPERATOR INSTRUCTIONS] Your first question is from the line of Adam Frisch with UBS. Please go ahead.

Thanks and good afternoon, everyone.

Wanted to get your views on operating leverage as we head into fiscal '07 and now that we have the drag of NHS behind us and if we're $75 million less in losses from NHS in '07 that translates to almost $0.06, you upped your EPS guidance by $0.02. So I'm assuming there's some potential upside in EPS, but I also wanted to get your views on how to get more out of the business in terms of the operating leverage both on the gross and the operating line?

Well, Adam, this is Mike.

The levers we look at are the ones that I've discussed with you and others before. First of all, we have a continued program to reduce our SG&A.

Secondly, in the cost of services, which is our largest single cost component, we have several things going on there in terms of a work around method. Tools and techniques in terms of approving the efficiency of what we do, in terms of being able to deliver more for less, if you will.

On the top line we think there are places in the pricing side where we have selective ability to continue to push prices up; by value of consulting type work would be an example of that. We think that the thrust we announced this year in terms of the use of offshore resources for ancillary [AO] type work allows us to bring some margin up along the way. So I mean those are three or four of the levers that we continue to work.

Okay. If I could just ask a follow-on to Bill.

Usually at the end of the year heading into the new fiscal year you've given great assessments of where you think the market is and what we can expect over the next six months in terms of demand fundamentals and pricing and things like that. Could we get one of those out of you on this call?

Yeah, I think, Adam, we feel good about the business, we continue to do our state of the business call every other week, we just did one the other day. Our outlook continues to be good. We continue to be encouraged by what we see.

You know, everything we look at in terms of momentum is pointed in the right direction to us. And in honesty, we've made some changes in our operating model and some of our leadership in the past, and all of that was around the opportunity to drive more growth out of this machine by trying to optimize growth from a geographic, a business platform, and an industry group dimension. So we feel good looking ahead. Really good.

Okay. Thanks. Mike, good luck to you. I'm going to miss your humor on these calls going forward.

Thanks.

Next question --

Your next question comes from the line of Julio Quinteros. Please go ahead, sir.

Hey, guys. Good evening.

Just wanted to just follow-up on the range for bookings and this is, I guess, related as well to the outlook. When you look at the 22 to 24, maybe if you guys can provide sort of a variance in terms of -- what would, I mean what would get you guys say the 24 versus the 22 in the sense that, is it, does it have to be more discretionary versus outsourcing?

I'm just trying to get a feel for that range because that implies somewhere between 8 and 18% bookings growth as we look into fiscal '06. I'm trying to understand how do you go from, say, one extreme to the other?

Julio, this is Pam.

We roughly see the bookings to be, I mean, last year they came in 52% consulting, 48% outsourcing. The way our plan looks right now, they look to be about 50/50 next year.

Okay.

And then what about in terms of growth dynamics? I mean to get to 18 versus 8, is it, do you expect an acceleration? Is that just sort of the normal course of business? Is it pricing increase? I'm just trying to understand why it's such a big window, I guess, relative to those two ranges?

Well, it also reflects our normal book-to-bills, where, you know, our book-to-bills on the consulting business typically run in the 1, there's 1 to 1.5 range, the book-to-bills in outsourcing typically around sort of a 1.3 to 1.5 range. So when you put those together you sort of get to a 1.2 to 1.4 to 1.5 around the business and when you put that around the level of revenue we're at, you get to sort of a $2 billion window.

We've historically kind of used a $2 billion window as one that we can land in, and, you know, the one or two big deals can swing a big part of that range. So it's directionally where we think we'll be.

Okay. I got it.

And then just, Bill, can you just talk about what the outlook for '07 budgets look like in the conversations that you guys have had with your clients?

Yeah, I think, I know there's been a lot of focus these days on what are their IT budgets going to do and, you know, as we have continued to remind people that there isn't a direct correlation between what happens in IT budgets and what happens in Accenture.

You know, I make my judgments on business confidence, on what CEOs are doing, are people investing in their business, are they doing things to compete on a pan European basis or on a global basis and, you know, we feel good about that. There's still a great deal of confidence in the market. There's people that have a great deal of confidence in their business. They continue to spend money to invest in their business broadly.

Technology is part of that solution, but people are an important part of the solution, and process is an important part of the solution and those things play into our transformational offerings and, you know, that's why we feel pretty optimistic about '07.

Great. Thanks.

Our next question comes from the line of Rod Bourgeois. Please go ahead, sir.

Yes, guys.

I want to give you a chance to maybe set the record straight a little bit on the extent that the NHS deal will help your fiscal '07 outlook. So by how much is your fiscal '07 EPS outlook being helped by the exit on the NHS deal? And then I've got a follow-up on a related note.

Well, the EPS guidance, the annual guidance is now $1.77 to $1.82, $0.02 higher than we have provided before and that directly reflects the impact of the NHS.

Okay. So, you're -- that's $0.02 is exactly equal to what you expect to benefit from exiting the NHS deal versus your prior plan?

Correct.

Okay. All right.

And then a related note here, as you look at the obligations going forward on the NHS deal, I guess I want to get a feel for whether you have any ongoing obligations on the NHS deal besides the transition that you're going to be doing with the CSC. In other words, is there any indemnification of CSC's risk on that deal coming from Accenture?

Ron, I think if you, this novation isn't a word necessarily that we're all familiar with. But essentially, we transferred our obligation and our responsibilities from us to CSC intact.

We have an obligation to do a first class job on transition, which we are absolutely focused on doing. We have some existing work with the NHS, which we're honored to have and we continue to be focused on delivering first-class work. And we stand ready to help the NHS should they need us as we go forward.

But in terms of when use the words "put this behind us", which is the terminology that we use, that means many of the obligations and so forth that were associated with our early work there.

So once the transition is done, the risk is on CSC, you don't have any sort of ongoing obligation once the transition is completed?

That's correct. There's no indemnification, specifically answering your question, post the period of working with them through transition.

Got it. And what was the $120 million payment for on the NHS deal?

It reflects the difference between how much cash we had collected and what we settled, if you will, for the value of services received, that's probably the best way to look at it.

Okay. So [it's] a true up on the cash flow side?

True up on the cash flow.

Okay. Great. Thanks, guys.

Our next question comes from the line of Andrew Steinerman with Bear Stearns. Please go ahead, sir.

Just give us a few thoughts on the U.K. It's a big geography for you. Now that you have the NHS behind you, I know you also recently had the big win in Unilever, how does that practice look for fiscal year '07?

Andrew, it's Steve.

I think it looks very good. If you look at the signs coming out of the fourth quarter, three out of our five operating groups are really on the rebound. Utilization within financial services was the highest and it was really supported by our work in the U.K.

That said, we're going to continue to work with the U.K government, as well. We're going to be selective about what we go after. But overall, I'm first of all, very pleased with the growth that we've had in the U.K. for Q4. I looked at the pipeline and, again, I said three of the five OGs believe and they were very bullish on opportunities for '07.

So U.K. ex-NHS is growing right now?

Ex-NHS it is.

And could you just make the same comment about the government unit ex-NHS? How do you feel about fiscal year '07?

Good, good. I think if you look geographically and kind of break it down that way. North America has still got some strong demand in the defense and intel area and we're chasing some very large opportunities there.

France and Ireland are strong for us on the European front. And Japan and Singapore are also very strong from an Asia-Pacific standpoint and we have steady work in Australia right now. So overall, I'm really happy with the portfolio of work we have, the risk profile and the financial returns.

But we'll see revenue growth, right?

Yes.

Thanks.

Next question comes from the line of Brian Keane with Prudential. Please go ahead, sir.

Good afternoon. I guess, Steve, could you help us with how many people were working on the U.K. NHS project and how you plan to redeploy the troops going forward?

Yeah, Brian, just real quickly, we've got about 500 people currently on the project. Roughly around 300 of those will transition to CSC. The remainder will be deployed to other jobs in the U.K. and elsewhere. I mean the U.K. is very, very busy right now so we don't see any problem at all in redeploying the people that we've got on the project.

Okay. And then just a follow-up.

The obvious question is with $125 million of losses expected in '07, those go away, we're done with that, shouldn't we see the margin expansion that I guess everybody's alluding to from those losses, I guess, in fiscal year '08?

Well, as Pam indicated we're targeting a margin, an operating margin in fiscal 2007 of 12.6 to 13.1. Based on our adjusted number of 12.4 in fiscal 2006, that represents a 20 to 70 basis point expansion as our goal for the year. We'll see where this year comes out and I'll look at, I won't, but Pam will, look at fiscal '07 in terms of how aggressive she wants to be.

And '08 after that.

Oh, wait a minute, excuse me.

Right. But I guess I'm just thinking about a [right] that that big losses are going away so we can hope to think that that should have helped at least give you a little extra boost when you start fiscal year '08.

I think that's a good observation.

Okay. Thank you.

Next question comes from the line of Pat Burton with Citigroup. Please go ahead.

Thank you for taking the call. My question is for Mike.

And that is in the 5% consulting revenue growth number, did you adjust that number in the fourth quarter of '05 as well to reflect the NHS contract?

When I gave the annual revenue comparisons, I gave the GAAP numbers only, which include, if you will, the impact of the 339. So I did not add it back if that's your question.

No, but in the fourth quarter of '05 number, does that include NHS revenue?

Yes. The fourth quarter of '05 would include some NHS revenue.

Okay.

And second question, was there any stock comp expense beyond options in the fourth quarter number this year for deferred stock plans? Restricted stock, anything like that?

Well, our equity plans are a compilation fundamentally of our issues in this day and age and some option expense, but there's certainly no extraordinary expense in the quarter.

No difference. Okay. Thank you.

Our next question comes from the line of Sandra Notardonato with Robert Baird. Please go ahead.

Thanks for taking my question.

My question actually has to do with organic growth. In light of the 10 or so acquisitions you've made over the last 12 months, one material the rest immaterial, what was the organic growth in 2006 including NHS and excluding NHS?

We haven't given you the growth numbers as of yet in terms of revenue. We don't split out the impact of M&A versus what you're referring to as organic for the simple reason that most of the M&A stuff we do we weave in and it becomes a piece of the fabric as opposed to sits out as an independent, autonomous entity.

So we run them as one. It's just a piece of the way we build assets to drive the business.

I would imagine that if you're looking at the business, though, from a 12-month perspective and if some of these transactions have earn outs associated with them that to some degree they are held separately so that you could give some level of organic growth for the year.

Well, we don't give organic growth or any growth around our M&A activity. We build it into our total growth discussion because of the reason I cited.

And for next year, is there going to be a similar level of acquisitions?

Well, it depends as to what we close, but our aspirations would be slightly north of what we closed this year.

Okay. Great. Thank you.

Our next question comes from the line of Ed Caso with Wachovia. Please go ahead, sir.

Thank you.

Just I want to make sure I was clear on the EPS guidance. The $125 million ongoing losses from NHS are baked into that number that's that part A.

And part B is the Dutch tender, is that also included in that? I remember when it was first announced there was some comment that some of the Dutch tender was included in the guidance but some may not have been.

The $125 million loss is included in the guidance and we expect it in the first few quarters. The discounted tender offer is reflected in our guidance. We have made some assumptions about what the demand will be and we're not going to disclose the specific amount at this time.

So does the $0.02 up, does any of that include the benefit of the tender?

No.

Okay. Thank you.

Our next question comes from the line of Tien-tsin Huang with JPMorgan. Please go ahead.

Thanks. Just some questions on the headcount.

What are you anticipating in terms of head count growth in '07 and how much do you expect out of the Global Delivery Network? And also if you could comment on your assumptions on wage inflation in '07.

Yeah, I'll start with the wage inflation situation because it's usually a pretty popular topic around as we get through our raise season here. Basically, the cost rate and the average raise for fiscal year 2007 is slightly ahead of where we landed in 2006.

That said, we've also planned to make up those raises and the increase in the cost base throughout the year just as we did last year through pricing increases. So we're very comfortable that we can achieve that and maintain our attrition rate, if not lower it. So that's that question.

On the headcount, again, we're planning for headcount roughly similar to what we had this year. We haven't landed on a specific target that we want to release right now in terms of an ending day or an ending figure for personnel, but I will tell you that the hiring rate will be comparable to what we achieved this year.

Also out of the Global Delivery Network?

Just as aggressive.

Okay.

Just, and then a clarification on the guidance. Is your revenue guidance of 9 to 12% based on GAAP? In other words, is that, what are you assuming in terms of NHS in the base for 2006 to get to that 9 to 12% growth?

Well, the adjustment that we took in Q4 for revenue is very small in relation to the overall base. So this really doesn't have an impact on our view that the business will continue to grow on a trajectory over the medium-term of 9 to 12%.

Very good. Thank you.

We have a question from the line of Steve Reddy with Lehman Brothers.

Hey, guys, thanks for taking the call.

In regards to India and the 3500 hires, can you provide a little more color as to which type of skill sets were hired, for instance, app skills versus consulting et cetera? And then possibly a little color on the attrition rate in India?

Yeah, the attrition rate is not significantly different in Q4 than it was in Q3 and, you know, basically it depends on what area, whether it's BPO or application outsourcing area, but roughly it's in the 20% range. I would tell you that in terms of the skills that we're hiring, there has been a move toward hiring more of what we call junior systems engineers and training them, bringing them through on the job training and putting them on our new engagements.

I would also tell you that we've increased our focus on application maintenance hiring, specifically around the SAP and Oracle areas. And we're aggressively growing those two areas in India, as well.

Great. Thank you.

You bet.

Our next question is from the line of Brandt Sakakeeny with Deutsche Bank.

Thanks.

I guess with the benefit of hindsight I'm curious, what procedures or changes in the process have you put in place to avoid another NHS? And yeah, if you could just talk to that please? Thanks.

Yeah, this is Bill. I will speak to it directly.

First I would tell you that, you know, the NHS' mission is an important one. I have spent time over there -- what they're trying to do really matters. It is big and it's complex and, you know, I just have all of the respect in the world for what they're trying to get done and we do as a company. And I think that's important.

Since the NHS went through our processes, we have done a lot in Accenture to deal with that. We have a capital committee, which is chaired by Bob Frerichs, who as I mentioned to you in the last two calls ago, is one of the people that's been helping get resolution on the NHS. So he lives the world of large, complex transactions. He is our Chief Risk Officer, he constructs the processes of the firm for how we review things.

I would tell you we have a much more intensive review process, we have a much more intensive legal dimension, a much deeper financial dimension to it, a much more rigorous process of going through it and it served us well in two dimensions. One is, it tends to screen out deals that would -- might end up in this spot. And it's done that for the past couple of years, hence we don't see anything on the horizon that would look anything like this.

And I think secondly, it's made us better businessmen and, frankly, more focused on the value we deliver the client. We have taken the NHS contract, contractually speaking to heart in terms of upgrading our procedures, our processes, and our diligence, and we feel very good and very comfortable about the processes we have in place in Accenture today.

Thanks, Bill, for that. And just Mike, a quick follow-up.

On the interest income line, was there anything else in there or was that just reflect the strong cash flows of the quarter?

Just that. I think there's no extraordinary items on that line.

Great. Thank you.

Operator, we have time for one more question.

Last question today comes from the line of Abhi Gami with Banc of America.

Great. Thank you very much for taking my question.

You have a rather wide range in the tax rate for '07. What would impact it to the high end or low end?

Well, we have still some reorganization liabilities leftover from our IPO in 2001 and they're about $350 million. Roughly two-thirds of those become current next year and they can impact our annual tax rate as they have over the past five years.

That's really it?

Basically, yeah.

Okay. Great. And if I could, one more quick question.

Your Grow America strategy was great in '06. Is there anything you're doing to renew that strategy in '07 to put a focus on the North American territory?

Yeah, there is. We've expanded the number of cities that we're focusing on. We started with a pilot project of about half a dozen city council programs, we've now doubled that for next year.

We're also going to put more pressure on the application outsourcing sales process that we started again this year. So we're going to continue to focus and expand the initiatives that we started there.

Great. Thanks much.

You bet.

This is Bill. Let me just wrap up.

Really, two things I want to cover. The first one is, you know, I'll just be honest with you, we are pretty pumped. We feel great about our results, we feel terrific about getting the NHS behind us and whatever sort of future drag that might have had on our world, and yet at the same time we are honored to continue to work on behalf of the NHS to do some things that are important over there.

I think we're also pumped about some of the things associated with our operating model and some of the leadership changes we've made because they're very subtle but they're very focused on, if you take your question on Grow America, if you apply the same diligence we put on Grow America to Grow Italy, Grow France, Grow the Czech Republic and we can get the same kind of results, I mean we've got something going here.

What our operating model changes recently have been focused on is to focus on the growth dimension, not just from an operating group point of view, but the geographies we operate in, the three growth platforms that we drive into the market in terms of our product lines and the operating groups. And we've reoriented much of the firm to focus on that growth agenda and we feel good about it.

And as a result as we look ahead, we feel terrific and I would tell you that we're reporting on Q4 and '06 today, but we as a leadership team have been down and dirty on '07 already and look forward to sharing those results with you as we post them.

I do want to just say a few closing words. As you know, this is Mike's last earnings call with us. He'll be leaving his position as CFO to become full-time International Chairman of Accenture on October 31st, working directly with me on behalf of our company and our shareholders.

Mike has provided distinguished service to Accenture for more three decades making an enormous contribution to our growth and success. He served as CFO since 2004 and previously held the position from 1997 to 2001. He was instrumental in Accenture's transition from partnership to corporate form and led all financial aspects of our IPO.

He also served as our Chief Risk Officer, Treasurer, and Head of Corporate Matters in addition to holding countless other operational and client facing roles. I and other members of our leadership team will continue to leverage Mike's expertise as he assumes his new role as International Chairman.

At the same time, we are excited to have Pam assume the CFO role. Pam has been with Accenture for 24 years, the last five as a member of our executive leadership team. In addition to her finance expertise, she has a wealth of operational experience having led our business operations and services organization prior to assuming her current role as SVP of Finance.

In addition, she has held leadership and client facing roles within our communications and high tech and products operating groups. In short, she is a straight shooter who knows our business as well as anyone and will step seamlessly into her new role. We are all very committed to a smooth transition.

In closing, we had a terrific quarter and year and we look forward to being able to continue to deliver strong results and appreciate your continued support.

As usual, I want to remind you that Steve, Pam, and I, as well as our broader leadership team, are available and happy to talk to you. Please call Richard to make any of those arrangements. Thanks very much for joining us today.

Ladies and gentlemen, this conference will be available for replay after 9:45 p.m. Eastern time today through midnight Eastern time on Thursday, October 12th.

You may access the AT&T Executive Replay Service at any time by dialing 1-800-475-6701 entering access code 842205. International participants dial 320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844 access code 842205.

That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.