Revenue for the quarter ended February 28, 2006 hit $4.1bn, up 8% from $3.81bn for the same period the previous year and very close to analysts’ forecasts of $4.14bn, according to Thomson First Call.
Consulting business was up 7% to $2.47bn, or 60% of total revenue, and outsourcing sales climbed 8% to $1.64bn, or the remaining 40% of revenue. New bookings for the quarter came in at $4.33bn, with almost the same split between consulting and outsourcing.
But the big news of the quarterly call was surely the monster earnings decline due to the NHS provision, which lowered net income to $67.9m and earnings per share to just $0.11 for the quarter. Without the provision, EPS would have been $0.38, on top of previous guidance and three cents ahead of analysts’ calls.
In December 2003 Accenture signed two major NHS contracts, to design, develop and deploy patient administration systems for the Eastern ($1.75bn) and North East ($2bn) regions of England.
The contracts have for some time dragged down Accenture’s profits, and the current $450m provision is the result of several developments in the second quarter that will have additional impacts including: costs coming from delays by a major subcontractor in deploying important software; higher development and integration costs down the road; and lower future demand for systems by local health care providers.
But the provision doesn’t include the regular annual losses the company has taken or will take in the future because of the contracts. The company took a loss between $110m and $150m on the contract for FY2005, and it expects similar annual loss this year and a moderately higher loss in FY 2007, at which point losses will decline through over the remaining terms of the deals, according to a company statement.
The company emphasized that the NHS deals represent roughly 1 percent of Accenture’s annual net revenues, and that the provision has no effect on current cash flow. It expects third-quarter EPS of between $0.45 and $0.47 on revenue of $4.3bn to $4.5bn.
