ICON PLC (ICLR) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the ICON plc fourth quarter and year-end 2002 results conference call. During the presentation all participants will be in the listen-only mode. Afterwards you will be invited to participate in the question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. As a reminder, this conference is being recorded Tuesday, July 30th, 2002. I would now like to turn the conference over to Mr. Sean Leech, CFO of ICON plc. Please go ahead sir.

Thank you. Good day ladies and gentlemen and thank you for joining us on our fourth quarter fiscal 2002 conference call covering results for the quarter and year-end, this May 31, 2002. On the call today we have Dr. Ronan Lambe, our chairman, our CEO, Dr. John Climax, and Peter Gray, our Chief Operating Officer. Peter and myself are joining the call from the US today. There may be some slight pauses when we come to the Q&A session, so I would ask you to bear with us at that time. Before handling the call over to John, I would just like to make the customary cautionary statements in relation to forward-looking statements.

Certain statements in these opening remarks constitute forward-looking statements concerning the company's operations, performance, financial conditions and prospects. Because these statements involve known and unknown risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, investors and respective investors are cautioned not to place undue reliance on such forward-looking statements. And with that I would like to handle the call over to John. John?

Thank you Sean. Good day ladies and gentlemen. Thank you for joining our conference call covering the results for the quarter and the full year ended 31st May 2002.

Net revenue in the quarter was 43 million dollars, an increase of 36 percent over the same period last year. Of this increase, net revenues in the US were up 35 percent on the comparable quarter while Europe and the rest of the world grew by 39 percent over the same period. For the full year, net revenues were up to 156.6 million dollars, an increase of 35 percent over the same period last year. With the US up 30 percent, and Europe and the rest of the world up 46 percent. Direct costs were 22.9 million dollars for the quarter, representing 53.3% of net revenue. This represents an improvement of 1.3% over the same quarter last year. SG&A costs were 34.9% of net revenues for the quarter compared to 34.7% in the same quarter last year. For the full year, direct cost were 83.4 million dollars representing 53.3% of net revenue, an improvement of 1.6% over fiscal 2001. SG&A costs were 35.1% of net revenue for the year compared to 35.6% for the same period last year.

Operating income grew by 50% over the same quarter last year from 3.4 million dollars to 5.1 million dollars. For the year, operating income grew by 64% from 11.1million dollars to 18.2 million dollars. Operating income was 11.8% compared with 10.7% for the same quarter last year. For the full year these margins were 11.6% compared with 9.5% in fiscal 2001. Taxation was 28.3% of free tax income for the quarter compared to 23% for the comparable quarter last year. For the full year, taxation was 26.5% compared to 19.2% for fiscal 2001. We expect our tax charge to be approximately 27% for fiscal 2003. As a result, net income for the quarter was 3.8 million dollars or 31 cents per share compared to 3.1 million dollars or 25 cents per share last year. Net income for fiscal 2002 was 14.2 million dollars or 1 dollars and 16 cents per share compared to 11 million dollars or 92 cents for 2001.

Net cash at 31st May, 2002 was 43.1 million dollars compared to 45 million dollars at the end of our last quarter and 35.9 million dollars at the end of fiscal 2001. Our investment in day sales outstanding, commonly referred to as DSOs, was 67 days compared to 70 days at the end of the previous quarter and 93 days at 31st May 2001.

As previously announced, new business awards in the quarter were a record 53 million dollars net. After cancellations and delays of 7 million dollars or 12 percent compared with net 45 million dollars in the previous quarter. At the end of the year, we had a total backlog of 276 million dollars. Of this, we estimate that a 144 million dollars will be add in the current year up 31 percent on the comparable period and this represents 78 percent of forecast and those of you who are familiar with ICON are aware this is the desired end of the range of forward revenue cover we tend to see, and experience has shown that when this percentage exceeds 75 percent, we are in a good position to meet or exceed revenue forecast.

Ladies and gentlemen, what more can I say? It has been a great year with our revenues growing 35 percent without acquisition. Our earnings per share rising 26 percent, and I believe it would have been a higher but for our good friend Mr. Green . Looking at our free flow, it is strong as you have ever seen, and this further continues to encourage us. I am therefore very confident about 2003.

Peter, perhaps you may want to say a few words here?

Thanks John. Yeah, and before we go over to the Q&A, I would just like to a little bit of context on our numbers and our performance. We realized the market is currently concerned about the possible impact of slower sales growth and merger activity in the large pharma company. So, we believe the reaction to the market to these risks in relation to ICON, is really ignoring our track record. At the risk of boring you all, I'm going to just go back through that few years and talk about a few things.

In the last five years, we have managed our business very successfully, we think through multiple markets including Kendle, Ciba Geigy, Aventis, , Glaxo SmithKline, Astrovenica, Pfizer Warner Lambards, and they are the only ones, they are only the one's I could remember, as I was putting my thoughts together for this. During that time, we've seen cancellation rights as a percent of business. As a percent of business wins should I say. Fluctuate from a lower zero percent in some quarter to as high as 35 percent in August. Yet we only missed one quarter in 17 as a public company. And we now have 12 consecutive quarters of meeting or exceeding market expectations. And in that time, we have to manage through, for example, for one example, the cancellation of a group of studies simultaneously by one client due to the withdrawal of their products from their market, and our business with that client fell from approximately 20 percent of sales to under 5 percent of sales in the following 2 quarters. Yet our sales in that year grew by 36 percent. The reason why pharma companies outsource is to pass the risk of project timing and uncertainty to CRO. ICON has developed the systems processes - a diversified client base, and a diversified portfolio of projects to help us manage those risks. The market is reactive currently. As if it does not understand that managing these risks is core to our business. Our business is managing the risk of cancellations at delays and timing differences. And we do it through a processes and systems and at diversified client and project portfolio. We have been very successful in diversifying our client base. In the last three years, we have seen the percentage of business from non top 20 pharma companies grow from 20 percent of sales in 2000 to 38 percent of sales in the fiscal year that we just ended. To wrap all these up, overall we have seen revenues grow in the last five years at a compound rate of 42 percent, even in the environment that I have been describing and earnings per share growing at 38 percent in the same period.

Yet all the risks that the market is currently perceiving will present all through that period. In the current business environment where business flow continues to be very strong, as John has said. We are winning new clients. We are entering new preferred provider relationships with significant companies and were the biggest challenge we faced is in hiring and training enough people to meet demand. The market's current concern seems to be considerably out of think with our experience from the ground and with that I will hand you back to John.

Thanks Peter. That concludes our opening remarks and I would now like to open the call up to questions.

Thank you. Ladies and gentlemen if you wish to register a question for today's question and answer session, you will need to press the one followed by the four on your telephone. You will hear a three tone prompt to acknowledge your request. If your question has been answered and you wish to withdraw your polling request you may do so by pressing the one followed by the three. If you are in a speakerphone please pick up your handsets before entering your request. One moment please for the first question. The first question comes from John Kreger with William Blair, please go ahead.

Thanks. Could you break down your revenue for us by a couple of different ways if you wouldn't mind breaking into the different functional categories such as lab versus the different face categories and even consulting if you got that granularity and also I think Peter you just referenced it, but if you could just again give us the mix between what you are considered to be large pharma in biotech and also could you give us the concentration statistics from your leading clients in the quarter.

Sean would you take the first one.

Hi, John, in terms of these revenues between the lab and the rest of our businesses, the lab in the quarter represented a 16 percent of our revenues. This is reasonably similar for the year. The lab registers just under 26 million dollars of revenues for the year as a whole, about 6.7 million for the current quarter. In terms of consultancy, we don't break it out like that John in books, the consultancy elements and other revenues would be pretty small or as it is guessed probably 2 to 3 percents of our overall revenue.

How about would you be going to break down phase II versus III versus IV?

Again John, we don't split our business. I would like to ask, I mean the majority of our revenues are in the phase II to phase III arena, as you know. Our phase IV is probably not the primary focus of the ICON machine. I don't know whether anybody wants to ask anything about.

I want to add to that John, our client when they give us project don't nominate whther they are II, III, IV, V, VI, or VII. You know they, they. We have to make it a judgment on that. Last night we were looking at our major clients, recognizing that people might have some questions about what time concentration was, which you have obviously, we will come to that in a second and even doing the analysis of those took a little time to determine what phase the projects that they were doing with them are. For doing it across all of our projects world wide, it is not something we try to do with, it is too judgmental.

Okay.

John, in relation to the client concentration question, we currently have three clients that accounts over 10 percent of a full-year revenue and they are AstraZeneca at 16, Pfizer at 14, and BMS at 12. Let me elaborate on this. With our top three clients, we are working on 77 projects, which involves 40 drugs and only four of these projects contributes a revenue flow of a million a quarter. Of the first two clients, Pfizer and AstraZeneca, over 80 percent of their respective revenues are earned from drugs, which we are carrying phase 3B and phase 4 trials and as you know as these drugs are already FDA approved and we have always found in such conditions, there is a limited exposure of cancellation of these trials. In relation to BMS, which contributes 12 percent of our revenues, we have said that this is largely due to their acquisition of DuPont in the second quarter. And again as we have indicated, we anticipate their percentage falling and they are full cost to contribute single digits 4 to 6 percent of our revenues in the coming quarter. Therefore, we do not see a concentration in BMS as an issue. Peter, do you want to add anything more to this?

Yeah, can I give a little color to that John, I mean, as John has said for the two larger clients there are 77 projects and 40 drugs on which we are working. So it is incorrect to think in terms of client concentration, it is much more important to think in terms of project concentration and as John has also said when we did this analysis last night that we were talking about it, John, we identified that over 80 percent of our revenue from those two companies, AstraZeneca and Pfizer are coming from phase 3B and phase 4 trials and we are talking about in those cases, 38 projects and 17 different drugs are all of which as I say are on the market currently or at least have approvable letters and we don't see significant risk in those. There is of course, and one of the things that people are concerned about, is that, in a situation of merger activity, and we don't know if Pfizer is involved in merger activity at the moment. That new outsourcing activity can slow down, while integration takes place. And we have seen that in some cases in the past, so it's worth commenting that when Pfizer acquired Warner Lambart we saw no such slowdown. However, we're very confident that our RFP flow from all sources today is very strong, and we're confident that even if we did experience a gap in new opportunities from Pfizer, there are business flows and our business wins would continue to be strong. As I've already eluded in my comments, we had many, many exposures to mergers in the past. We've experienced slow downs with certain clients, but at the same time, we've seen other clients grow in their importance. We have no fear arising from the Pfizer-Pharmacia proposed merger.

Great, thank you very much. One additional question, you mentioned that you're quite confident in expectations for fiscal 2003, can I get you to just be a little bit more specific about what your objectives are? I assume, you just had a great year with 36 percent revenue growth in the most recent quarter. I assume that's not a level of activity that you are necessarily expecting over the next year. But if you could just be a little bit more clear about the level of growth that your current look at business support, that will be helpful?

Peter, you are going to take that?

Sure John, yeah. I think the guidance in the market place and again, we commented in our press release that we're comfortable with current estimates. for revenue growth somewhere around 20 percent plus for the year ahead John, we have always guided to a belief that we can continue to grow over the next few years at 20 percent plus, and that's where our comments are coming from. So, based on where we sit today, we envison the 20 percent plus is achievable and 30 percent, probably not, but who knows? As I said, business flows are strong.

Great. Thank you very much.

The next question comes from David H. Windley with Jefferies & Co. Please go ahead.

Good morning, now it is morning here anyway, to everyone. Fantastic quarter. I have several questions. First one is as it relates to the John's question as it relates to top line growth. Could you talk about your new business wins in the context of your lab business and the clinical phase II to IV management business, are you seeing proposals that are leveraging the cost selling opportunities of those two businesses or are they still largely selling independently? What is the average size of the wins that you are seeing and you think that ICON is now large enough and global enough in its scope to be seen in the largest projects?

Let me take it reversely Dave. Okay? Lets talk about the large projects. In the quarter, we have earned significant revenues from seven lab single studies. Fee inturn exceeded about a million dollars a quarter. The average value of our major contracts that we have been winning annually has been increasing year-by-year, and as we have continued to globalize, we are seeing an increasing number of large contracts. However, the majority of the contracts are outsourced by our clients to us within the region of 2 to 5 million and that will continue to be the backbone of our business. In relation to the breakdown between the labs and the other phases, perhaps Sean you want to take that?

Yeah John yeah. In terms of seeing them in the business awards were basically what is the same proportions Dave, as the revenue, our revenue split between the various components of our business at this stage pretty much consistent over the last number of quarters. I think we average probably a 1.2, 1.3 book-to-bill for the quarter and that's pretty consistent amongst all the segments within our business.

Okay okay.

Can I just make a further comment on the last part of your question Dave with regard to, are we big enough and to see global projects, the big ones and so on. The answer is absolutely we are and as John said, we are seeing an increasing number all of the time. You know truth is not everyone has got a religion yet, I have recognized how good ICON is and how big ICON is, but for those two companies with whom we have relationships, no question, we get to see the big ones and we are continuing to see more and more of those as more people get religion as I said.

Great. Following up on that a couple of income statement margin type questions, in your slide that shows your operating margin levels, they've improved nicely and reached very nearly that 12 percent target, and kind of becoming absence to that 12 percent target. I'm wondering where you see margins going, generally speaking, and then also comment please on your tax rate was a little bit higher this quarter than the 27 percent level that you are talking about for 2003 and the reason for that please? Thanks.

Sean, could you take that?

Sure John. I'll take the tax first David. Our tax rate tends to fluctuate a little bit, particularly in the context that's split between profitability in Europe and the US. But also within the European region, there are a number of different tax jurisdictions that we operate in, and therefore on a quarter-by-quarter basis we're going to see small fluctuations in terms of our effective tax rates. And in the quarter, this quarter it just happens to be up on the higher range of that. If you look at previous quarters we've been up, sort of the 27 and sub 27 percent levels, and that's going to happen, the consequence of just where the profits get pretty much worldwide. In terms of the forward projections, we're pretty comfortable with the 27, you're going to see that up one and down one percent that you'll save over on a quarter-by-quarter basis, both are pretty confident that the 27 percent average, we will plan it over a 12 month period. In terms of the margins, our margins have been taken up slowly, materially over the recent quarters, then I now see that trends continuing as the lab contribution continues, and as a little bit of drop that we saw in our European numbers works its way through, I think we should be able to see our margins in excess of the 12 percent. I'm not sure it will happen, I am reasonably similar to actually that we've seen in the past days, may be a point 1 or point 2 on a quarter-by-quarter basis, and, you know, as I say, down to the improvements in our capacity utilization in Europe and also the performance in our lab business. There's also some seasonal things in there, which caused some very minor fluctuations. They remained 0.1 percent on our operating margin line represented at 40,000 or 50,000 dollars. So, now the number in absolute dollar terms, I suppose is reasonably smaller in the ground scheme of things, but the overall trajectory should increase in line with the processes may be pepping ahead a little bit more.

Okay great. Just one quick follow on. Would you be willing to comment on where the margin is in the lab business at this point?

Yeah for the year-to-date, the margin in the lab was a bit, just a little over 14 percent , about 14.5 percent. Obviously, Q3 as we said, we had some reasonably higher end margin-testing going on there, which booked the trend a little bit and we were trying for , but you know, it is not something that will reoccur. So, for the year it is about 14.5. The current quarter was a little under 13.5 percent and that have expected to continue off that trajectory into next year. We will probably range, I'll give you a wide range Dave, probably averaging about 15 percent for next year.

Right. Thanks for those answers and wonderful quarter.

Thanks.

The next question comes from Robert Chyle with UBS Warburg. Please go ahead.

Thank you very much. Nice quarter guys. A couple of questions. In the central lab, you seem to be doing much better, you are trying to give money, is the run out is true or is there any still time to run on it?

No Dave. We have one more year left on us as the guys in the management teams in the lab have achieved their run out for the current year. You know, based on our projections for next year, they will be probably at the upper end of the run out for fiscal 2003. .

Okay. I am sorry if I missed this as I joined the call a few minutes late. Could you run up the cancellation rate in the fourth quarter?

The cancellation rate was 12 percent for the fourth quarter.

Thank you, and lastly, I wonder if you could comment on business flows in Europe versus North America?

Peter do you want to take that?

Sure. Undoubtedly business was strongest in the US. Although, looking at the data in Europe is up on prior year by something of the order of 20 percent in all that free flow, but the state is well over 30 percent heading towards 40 percent. So, the strongest flow is definitely in the US, both Europe is fine also and apparently actually getting stronger presently.

Any hints on what's driving the strength in the US market?

It is very broadly based, so what's driving it is I do not exactly know, but it is very broadly based. We are seeing opportunities of varying sizes from the very large to the average coming from a very wide variety of clients and getting where we are beginning to see, we are continuing to see opportunities coming in from companies that have not traditionally been strong with ICON. So there seems to be a lot work out there and people are trying to find people who can do it for them.

And Rob, can I just make another point, one direct correlation between the increase in the flow is the reputation that we have in the industry has been very good, high quality performance, and I believe that's one of the reasons why our market share is increasing and that reflects the increase in the in the US.

Okay thanks.

The next question comes from Ian Hunter with Goodbody Stockbrokers. Please go ahead.

Good afternoon gentlemen, I think most of my questions have been answered but just a couple here now. I am just wondering what percentage of the business is being generated from the biotechnology sector, I think I was going to ask, let me get an idea of the percentage of the business and is that any sign of this kind of tailing off given the trouble that the biotech sector seems to be having over the last 6 months. And I have got an idea that your muted cancellations is 12 percent of the reserve about 7 million, but is this across the board both in terms of pharma and biotech or rather more cancellations in the biotech sector and are they several small projects or was it one or two large projects that were cancelled?

I'll take that. In a nutshell Ian, 50 percent of our client base is made up of biotech companies. We have a client base of about 450 and working with 200 of them today and of the other 50 percent who are nonbiotech companies, they are also working with biotech compounds. So, it is extremely difficult for us to strip and give you data, which are the biotech drugs or not but just looking at biotech companies, 16 percent of our revenues for the current quarter and 14 percent for the year came from pure biotech companies and this is increasing gradually. There hasn't been any massive cancellation we have witnessed within the biotech sector. I hope that..

Can I add to that John?

Yes.

You asked Ian about have we seen any tailing off in the activity from biotech companies, as John shown the current quarter was actually or the quarter we reported is actually stronger. And I wouldn't expect to see it tailing off and we have to see at this in context. Biotech raised 40 billion dollars and the Biotech and specialty companies raised 40 billion dollars in 1999-2000 and it takes some while to burn through that and we continue to be amazed at the number of companies that are approaching us that have 2,3,4 hundred million dollars on their balance sheet and one project executed. So, I don't see a tailing off taking place in the foreseeable future. In fact, I would hope that by the time they burn through the cash the market will be, will be looking for more.

Okay. Also the other thing was within the cancellations, was that a number of small cancellations just came through or what actually?

Can I clarify something? We mentioned to muted cancellation in relation to the current quarter, not the previous quarter. 12 percent, we wouldn't describe as muted . We would describe as, you know, a little below average. The cancellations were two or three sort of average sized projects. Nothing particular significant and I can't even remember, if they were, what company would have been involved, what types of companies would have been involved. But, nothing out there, nothing in us, that would lead us to have any concern. The muted cancellation comment is the current quarter, we're almost two months through current and basically we've seen virtually no cancellations in the first two months of this quarter.

Okay. Thanks very much.

Our next question comes from David Martial with NCB Stock Brokers. Please go ahead.

Good afternoon, gentlemen. And John you mentioned some data there on the profile of the largest clients in the full year. I'm just wondering would help us for the profile in the most recent quarter as well and perhaps you could comment really on the pricing and pricing neutralization, pricing really within the industry and utiliization rates across Europe first the states.

The date that I have given you is in toto, I don't have a breakdown for the quarter. Peter have you got that?

I have in relation to be in that John because of our statement of both the percent in BMS declining. The current quarter for BMS was down to 7.9 percent and as John has said, David, we expect BMS to be down in the 4 to 6 percent range in the quarter we're now in. But I don't have the quarter data for the other two. I do, I just found it here. Its 12.9 percent for Pfizer. Is that the one? and I don't really have it.... Its under 20 percent for AstraZeneca.

Okay. Thanks John. And in terms of price within the industry, is the outlook good amongst clients?

There's always been talk of pricing pressure but we have not really seen it. And we've constantly said that. And again it's a mixture of a lot of things; it's our performance, the quality that we provide, it's the dedicated teams, and we have not really had push back from a lot of clients on price. They do argue the tolls with us but it's not a major issue. So if I can add again John the market economics says that you can come under pricing pressure when there's not enough work for all the players in the field. If you read between the lines on what we're saying in terms of the RFP flow we certainly don't find ourselves in that position and the comments I made earlier I was eluding to the fact that the biggest challenge we have is getting enough people to do the work that have been asked to do. In that environment, we need to be taken up sharply, we were actually discounting our prices when in fact we have capacity constraints. So the short answer to your question is we are seeing no pricing pressure.

Sure.

I think its frustrating for us, lets call a spade a spade. Its frustrating for us to see how nervous the market is about the environment, when we are seeing an environment that is completely different to what everyone seems to be scared of.

Yeah and if I could just really follow on from that may be when your competitors, I think it was Covance said that their business wins were impacted by lower rate request for proposals, so that seems completely contrary to what you're saying, is that correct?

That is correct and I think we're not the only one who has said they have seen very strong business proposals. So, may be some of the industry is finding it tough for it more than they the others.

Okay. So, in light of that, you know, you can only assume that you are gaining market share continually?

Absolutely, as John has said.

Okay. Thanks very much guys.

The next question comes from Jack Gorman with Davy Stockbrokers. Please go ahead.

Thank you. A couple of diverse questions perhaps. Three of them in total. Just, Peter you mentioned that recruitment trends and CRAs, can you just give us a flavor for what CRA rates have been and whether there any increase in those CRA rates over the last six months or so and how you see that recruitment environment over the next six months obviously if it is difficult to find people, it may also cost more to find them and secondly just in terms of utilization, broad utilization metrics, how you are figuring on your billable and non-billable ratios, I know that is a matric you look at and finally just in terms of operating cash flows for Q4 and for the full year, if you could give us a little bit of guidance as regards how working capital movements or any other operating cash flow had some impact for both those periods?

John, do you want to take the cash flow question first?

Sure. Looking in terms of the cash flow of Jack, obviously we had a in terms of our DSO, position has improved as the year has progressed and you know, we are still to ensure that. I think, clearly ultimately see our DSOs battling in and around on a more consistent basis and will be below these levels but we believe we can maintain on accounting basis with somewhere between 60 and 65 days.

Okay.

Obviously the growth of the organization has got its implication in terms of working capital, most of our DSO improved strongly over the year. We have to invest more significantly in our working capital positions as reflected in our press release. Some continue, you know, there is ultimately no way where they end up and if you want to continue growing the business, that's what is going to happen. On the other side of that Jack, well you have to say, you know, we generated in excess of 17 million dollars this year in terms of operating cash flow. You know, and some of that Jack is the returns are more appropriate levels of DSOs but a good chunk of that is also cash generation and I think if you took a calculator and started work at it, it is about 140, a little bit above dollars per share for cash flow, which I think is pretty good. But, you know the constant investments you grow 35 percent per annum Jack, you gonna bury more and more of working capital in to those lines.

There weren't any non-recurring cash flow to items with us?

The only item which is not included in the 17 million number that I called should, would be share options that were exercised during the areas you recall our share price at the earlier part of the year was quite attractive and obviously a number of our employees took advantage of 2.6 to 2.7 million but that is not the reflection of the upper raising activity, it is more of a reflection of a financing activity.

Peter, do you want to take the question, Jack's question on utilization and CRA rates?

Yeah. On CRA costs, Jack, you know, discipline is very important in managing the business. So, the worst thing we could do with the company is where we are trying to accelerate our hiring as increase prices effectively for a certain types of stocks and drive off our entire cost base. So, what we are seeing is a continuing normal increase in CRA cost and other types of debt cost. In the US, we have seen over the last number of years, average increase rate has been running some where between 4 and 6 percent and that haven't changed even in this environment because we are not letting it change. From time to time, again, if other people have a need for stock, you can have a little blitz, you can have a little bulges in, where here in the States, for example - sign-on bonuses get offer to people in order to induce and them to leave one employer and join another. Those kinds of things come in way and again ICON tries not to get caught on that particular merry-go-round, because, ultimately, it is just a portion of cost base. That being said, back to an earlier question, we have had little resistance to increasing our charge off rates over the last number of years, even in an environment of general low inflation charge off rate has generally gone up by 6 percent plus per annum and therefore we have been able to recover the cost increase that will be coming through to us and that hasn't changed either. Europe, because of the fact that business is not as buoyant in Europe and because employment is not yet tight in Europe, we haven't got the same level of pressures there and therefore it is even less of an issue within Europe. In terms of our billable to non billable ratio, Sean it is currently running out.

Jack we are little, little ahead of 18-20, the proportion of our billable obviously with good growth we have taken advantage leverage to a little bit more as of the nonbillable elements. So we are slightly above the 80 percent mark now at this stage.

And is there any differences shown between the U.S and Europe in that regards?

There will be a little bit Jackson, all those corporate bodies are all based in Europe, so this tends to be little bit more overhead than Europe but it is not hugely disproportional.

Okay that is great, thanks very much.

Ladies and gentleman as a reminder to register a question please press the one followed by the four at this time. Our next question comes from Chris McFadden from Goldman Sachs. Please go ahead.

Thank you and good morning everyone. Two questions if I might. Firstly you talked about the expected change in Bristol-Myers as a contributing factor to your overall business. Could you give us a sense of who you might expect to be with regard to your new number three in terms of market share of your booked business beginning in the second half of this year and then secondly I was wondering if you could update us on what types of systems investment you are making across the enterprise to keep up with those your basic growth but also to help maintain a good productivity among your clinical investigators. Thanks.

John I pick up.

Yes Peter.

I could find that BMS who you would expect to, to, move up the ladder from BMS. I think number 3 is likely to be and we are probably more open in our disclosures on our client care than anybody else in this industry because we are very open about who is over 10 percent is not currently over 10 percent but may become over 10 percent in the coming quarter.

We appreciate this disclosure. Thank you.

In terms of system investments we are constantly looking at various investments to streamline the organization and to bring in efficiencies, probably the biggest single investment that we are currently looking at is a work flow management system that will effectively eliminate a lot of paper within the organization and have us operating on an image basis - all paper in the organization will be, will be passed around by images and we are in the process of making that investment as we speak but that is probably the most significant, you know, there are 8 or 9 different major investment projects in one form or another going on in our ITIS section, but that is the one that I probably goes closest to your question

And what would be a reasonable timeline you think to bring that type of system to be fully operational?

Probably an 18-month timeframe.

Great. Thank you.

John Kreger with William Blair, please go ahead with your follow up question.

Great thanks. The SG&A spending had a fairly significant jump sequentially. Just wondering if there is anything in particular behind that and if there are any unusual non-recurring items in that 13.4 million dollar number.

Sean!

Sure John. Nothing particularly unusual John, obviously it did keep us on bumps and curves in terms of spend on a quarter-by-quarter basis. I think the only thing I can probably talk to in relation to that is obviously the sort of recurring team, the hiring in the US is at full stretch. And obviously when you hire, you use recruiters and you also then have the need to train people, ICON training program, which tends to cause little spikes in our travel, and those two items has probably caused a little bit of a bump in the SG&A, and as we continue to be successful in terms of the recruitment, that will probably continue for a couple of quarters, John. Difficult to predict, because probably over the next couple of quarters, depending on how the market goes, which we expect to continue in the long term, we're going to see that sort of level. In terms of the current quarters percentage John, you know, it is not hugely disproportionate to what we have seen in the past, that's actually still the 2000 and early 2001 levels. But it is probably a little bit higher than we are going on this year.

Great thank you.

Dave Windley with Jefferies and Company, please go ahead with your follow up question.

Hi, one good question on, I don't think I've heard it past this morning is your acquisition pipeline. You've talked about being interested in capability, may be some phase 1 capability. I wondered if you could update us on your most recent thoughts there, given that you have been one of the most successful acquirers in CRO group, that would be an interesting element to the growth for next year?

All right Dave, we don't have to go by acquisitions, and we've made that point quite clearly. Where we will make acquisitions is in areas where we do not have expertise today, and our focus continues to be in the area of early phases, particularly phase 1. Our growth today has been largely organic. And we have increased our operations in a number of countries. We've commenced operations in Bangalore, India. We've become fully operational in Tokyo, and we continue to expand facilities in the US and in Europe. And In Ireland, we have expanded our data management and our laboratory group. We have been doing a lot of work in Canada and in the current year we expect to set up a permanent operation there, that's how we grow. From an acquisition point of view, our focus continues to be in the early phases and there are some interesting opportunities out there and I hope they will come in to a position pretty soon.

Okay great, thanks.

Gentlemen, there are no further questions at this time, please proceed with your presentation or any closing remarks.

As there seem to be no more questions, I would like to thank you all for joining us today. As I said earlier, it has been a fantastic year. Our business, both on performance and wins are excellent and we are very confident in our outlook and therefore I strongly believe that the market fears for the future are completely overblown. Thank you.

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and asks that you please disconnect your line.