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Accenture impressive first quarter fiscal 2008 results – positive trends for Accenture: challenges for Indian outsourcing

vendors? Accenture impressive first quarter fiscal 2008 results
Accenture released their first quarter fiscal 2008 results December 19th, 2007 (Accenture fiscal year ends August 31st). The results and the guidance are a good indicator of possible trends and spending pattern for 2008. Accenture does appear to have a fairly high degree of confidence in their outlook going in 2008. The earnings should help balance the doom and gloom scenarios being projected in IT spend for 2008. It was interesting to see a renewed level of confidence in the earning call. A month back the Accenture team had a bit more cautious approach. Overall I believe this should bode well for the 2008 markets for outsourcing firms. Bill Green, Accenture Chairman and CEO mentioned that the senior leadership team has been doing the round with their ‘diamond’ clients and feels comfortable with what they hear. Bill also interesting took a swipe at the competitors (‘low cost’ providers) who he believes are stubbing their toes now and will not be able to compete with the full range of services which Accenture offers! LINK TO ACCENTURE CALL TRANSCRIPT Financial Highlights • •
• Net revenues of $5.67 billion increase of 19.3% Year-Over-Year Earning per share $.60 cents increase of 30% Year-Over-Year Guidance for full fiscal year raised to a range of $2.36 to $2.41 – raised by $.15 cents Operating Income 19% increase $726 million or 12.8% percent of net revenues compared with $610 million or 12.8 net revenues Gross Margin was 30.1% flat as 2007 SG&A $970 million - 17.1 percent of net revenues compared with $ 817 million 17.2% 5.9 Billion US$ bookings (Consulting 3.4, Outsourcing 2.5) Consulting net revenues were $3.46 billion an increase of 19% YoY Outsourcing net revenues were $2.22 billion, an increase of 20% YoY

Business Highlights
America’s revenue: 2.325 billion (grew 11% YoY). Growth coming from USA and Canada and Brazil and Argentina • EMEA revenue: - 2.883 billion (grew 25% YoY) – Growth in UK, France, Italy, Spain and Netherlands • APAC revenue: 465 million (grew 29% YoY) – Growth in Japan, Australia, Singapore and China • Global Delivery network of 75,000 people grew 41%. Strong growth in India and Philippines (43% headcount in global delivery network) • 175,000 employees , Utilization 83%, Attrition 17% Product Area breakdown in revenues: • Communication and High Tech: $1.3 billion (20% YoY) • Financial Services: $1.244 billion (17% YoY) • Products: $1.473 Billion (23% YoY)

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Public Services:$709 million(13% YoY) Resources:$931 million (22% YoY)

Market Trends
1. Accenture does not foresee a slow down in IT and business spending despite the adverse market conditions. The team believes that there could be a potential growth in spending and customers they have spoken with. 70% of the businesses in the US see a focus to increase sales and 80% of these expect the employment to rise in 2008. 2. Financial Services industry product line for Accenture has grown YoY by 17%. This growth has come from US and EMEA. 3. There is no market pushback or delays in larger deals which Accenture is seeing in the marketplace. 4. Significant opportunities in outsourcing exist (outsourcing does not directly equate to offshoring). Accenture also continues to be selective about their clients. Growth continues to come by going deeper in existing relationship with clients. 5. There is a short term growth in consulting demand in certain industries where clients are looking for short term cost reduction processes to allow companies to save money for mid to longer term initiatives. This necessarily does not mean a growth in offshoring but a whole range of consulting product offerings from Accenture including: re-engineering, six sigma, process improvement, strategic realignment etc..

Where is the growth
1. Accenture expanding industry expertise in Military command and control operations – Accenture has recently purchased two companies in this space (Gestalt and Maxim systems) 2. Strong growth in Management Consulting – Human Performance has been a growth area 3. Outsourcing growth in Learning, F&A and Procurement

4. Growth in Technology consulting business – strong demand for Microsoft technology services. Growth seen in Network consulting services ( Accenture acquired Coriliant) 5. Strong demand for ERP consulting – SAP and Oracle 6. Expanding BPO vertical offerings in Health Administration and Pharma 7. Growth in Infrastructure outsourcing 8. Overall levers Accenture is looking to manage business a. Pricing initiatives b. SG&A – Opportunity to drive down cost in Sales. In G&A corporate functions moved to low cost locations c. Chargeability – Down from 86% to 83% and believe this optimum in most areas.

1. Accenture has seen strong growth in their global delivery network (41% YoY) and has seen a strong growth in India and Philippines. 2. Accenture setting up a Management Consulting Center of Excellence in Delhi and will add another three locations across India. The COE will build expertise around Data Analytics, Workforce optimization and Supply Chain. 3. Accenture COO did not disclose any hard numbers on growth they expect in head count in India. (Based on recent press releases Accenture has 35,000 employees in India and plans to grow at 30-50% YoY – see links at the end of the report)

Sound Bites
Bill Green – Accenture – Chairman and CEO
One is, some of the new entrants in the outsourcing business are starting to stub their toes, and those are people that sold sort of cost-based deals and they are having delivery issues, or service level issues associated with the cost. The other thing that has happened is as people have gotten more experienced with this, they understand the power of the transformational proposition as opposed to the cost based one. And so I find that people are a lot more tuned in to what's the service level, what's the predictability, what's the reliability, all of those things as it relates to the outsourcing proposition. I found this very interesting as Bill takes a shot at the Indian ‘low cost’ service providers who are working to move up the value chain and compete with the Accentures, IBM, and HPs.

Julie Santoriello - Morgan Stanley - Analyst
Great. And just one quick clarification on, for those customers that have started down this path of looking for quick cost savings type of things, does this almost universally mean offshore?

Bill Green - Accenture - Chairman and CEO
Oh know, absolutely not. It has to do with rationalizing of strategy and our people putting their investments in the right place. Are they focused on the most profitable offerings? In certain industries, it has a lot to do with customer service because a major cost in certain industries is the cost that it takes to maintain a certain level of customer

service. And the question is -- how can you maintain or improve that level of customer service for less money? So I do not at all connect the two. Now, downstream might there be opportunities for people to have services performed in a lower-cost profile environment? Absolutely right. But the going-in position is finding and tuning what you need to do to drive out the cost. And some of the off shoring stuff may be medium or longer-term cost improvements, but the short-term ones may come from classic re-engineering six sigma and rethinking how people do things OUTSOURCING IS NOT OFFSHORING where clients see short term cost saving potential

Andrew Steinerman - Bear Stearns - Analyst
Could you just give some comments about IT budget process? Is it coming along in a normal fashion? Obviously you're very clear that demand for your services are strong and obviously not solely dependent on IT budgets. But could you just give us an IT budget comment?

Bill Green - Accenture - Chairman and CEO
Yes, Andrew, this is Bill. I would say, I've been in the marketplace for pretty much the last month out, and this is the time of year everyone is pulling those together. I think the first place we start is we look at what do people think is going to happen to their business. And I think on balance, people are pretty confident about what they see is going to happen in the business. And even in some of the areas that are challenged, people continue to invest broadly in their business. Now IT is a part of that, but there are a lot of other things people are doing to improve their business performance. So, frankly, we have not seen any impact of an IT budget thing on our business at this point. ACCENTURE DOES NOT SEE ANY IMPACT ON IT BUDGETS IN THE MARKET FROM THEIR CLIENTS

How do Indian outsourcing vendors compare with Accenture (Revenues)
Accenture Financial Year ending August 31st, 2007 revenues: $19.70 billion TCS Fiscal 2007 year ending March 31st revenues: $4.3 billion Infosys Fiscal 2007 year ending March 31st revenues: $3.09 billion Wipro Fiscal 2007 year ending March 31st revenues: $3.5 billion

Past news links to Accenture in India
Accenture plans to scale up operations in India Hunt for talent in India – The Accenture game plan Accenture-Bristol Meyers opens center in India Accenture opens consulting center in India Accenture in $ 185 million pact with Microsoft to provide Finance Service BPO Accenture acquires Coriliant Accenture expands in Chennai Thomas Cook sign $400 million dollar deal with Accenture Hiring fever runs high in IT firms in India F&A moving upstream Domestic Markets growth in India Infosys CFO – Slowdown will affect onsite companies