Earnings Call: Q1 2013

Dec 19, 2012

Ladies and gentlemen, good afternoon. Thank you for standing by, and welcome to Accenture's First Quarter Fiscal 2013 Earnings Conference Call. At this time, all lines are in a listen only mode. Later, there will be an opportunity for your questions. I would now like to turn the conference over to our host, Managing Director of Investor Relations, Ms. Casey McClure. Please go ahead. Thank you, Tom, and thanks everyone for joining us today on our Q1 fiscal 2013 earnings announcement. As Tom just mentioned, I'm Casey McClure, Managing Director of Investor Relations. With me today are Pierre Namterm, our Chief Executive Officer and Pamela Craig, our Chief Financial Officer. 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. Pierre will begin with an overview of our results. Pam will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the Q1. Pierre will then provide a brief update on our market positioning. Pam will then provide our business outlook for the Q2 and full fiscal year 2013 and then we'll take your questions before Pierre provides a wrap up at the end of the call. As a reminder, when we discuss revenues during today's call, we're talking about revenues before reimbursement or net revenues. Some of the matters we'll discuss on this call are forward looking, including the business outlook. 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 and that such statements are not a guarantee of our future performance. Such risks and uncertainties include, but are not limited to, general economic conditions and those factors set forth in today's news release and discussed under the Risk Factors section of our Annual Report on Form 10 ks and quarterly reports on Form 10 Q and other SEC filings. During our call today, we will reference certain non GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of those measures, where appropriate, to GAAP in our news release or on the Investor Relations section of our website at accenture.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to Pierre. Thank you, Casey, and thanks everyone for joining us today. We are pleased with our results for the Q1, which were in line with our expectations and demonstrate that we continue to deliver value to our clients and to run our business with discipline. This is enabling us to drive profitable growth despite the continued volatile economic environment. Here are a few highlights. We delivered solid new bookings of $7,500,000,000 Revenues were $7,200,000,000 up 5% in local currency. We were particularly pleased with our double digit revenue growth in Outsourcing, up 13%. Earnings per share were $1.06 up 10%. We expanded operating margin more than 60 basis points to 14.5%. We continue to have a very strong balance sheet ending the quarter with a cash balance of $5,700,000,000 we continued to return cash to shareholders through share repurchases and the payment of a semiannual cash dividend of €0.81 per share, a 20% increase over our prior dividend. So we are off to a good start in fiscal year 2013 and are raising our outlook for both EPS and operating margin for the full year. Now let me over to Pam who will review the numbers in greater details. Pam, over to you. Thank you, Pierre. Happy holidays and thank you all for joining us today. I am pleased to tell you more about Accenture's fiscal 2013 Q1 financial results, which as Pierre just mentioned are starting us off well for the year. Overall, our growth in revenues was driven by double digit growth both in outsourcing and geographically in the Americas. We also achieved double digit growth in our earnings per share as we continue to drive our business with a strong focus on profitable growth. Now let's get to the numbers for the Q1. Unless I state otherwise, all figures are U. S. GAAP, except the items that are not part of the financial statements or that are calculations. New bookings for the quarter were $7,500,000,000 and reflected a negative 2% foreign exchange impact compared with the new bookings in the Q1 last year. This is what we expected after Q4 bookings of 9 point $2,000,000,000 and we have replenished our opportunity pipeline to be well positioned for bookings in future quarters. Consulting bookings were $4,200,000,000 and outsourcing bookings were $3,300,000,000 Let me give you some bookings details, starting with consulting. In management consulting, bookings were lower this quarter, particularly in Europe and Asia Pacific, but were up in the United States. Business demand continues to be strongest in operations, customer relationship management and talent and organization. Technology bookings were up and reflected continued strong demand from our clients looking to capture greater business value from IT. We saw a number of transformational projects this quarter in workplace enablement, desktop transformation and data center consolidation as well as projects in infrastructure consulting, IT strategy and security. System integration bookings are holding their own from a book to bill perspective and reflect continued demand to modernize and upgrade core ERP as well as more demand for industry specific systems across the major platforms. Emerging technologies continue to gain momentum as we are helping clients integrate software as a servicecloud, mobility and Digital Interactive Solutions. Turning to outsourcing. Our bookings in technology outsourcing were down a bit after our strong 4th quarter bookings, yet reflects good demand across our operating groups and geographically across the Americas, Asia Pacific and parts of Europe and Africa. Our clients are seeking immediate cost savings and reliable performance in addition to flexibility and talent at scale to meet their dynamic IT needs from legacy to emerging and to help them transform their operations to drive more competitive levels of IT and business performance. BPO bookings in Q1 were lumpy compared to the record level of Q4. They reflect continued demand for our cross industry offerings, especially finance and accounting, well as procurement and for our industry specific solutions in resources, products and financial services. Finally, we had bookings of over $100,000,000 at 7 clients with all 5 operating groups represented. Turning now to revenues. Net revenues for the Q1 were $7,220,000,000 an increase of 2 percent in local currency over the same period last year. Pretty close to the outlook of negative 3% FX we provided last quarter, these revenues reflected a foreign exchange impact of negative 3.4 percent compared with Q1 last year and we're in the middle of our guided range of $7,100,000,000 to $7,350,000,000 Consulting revenues were 3,960,000,000 dollars down 3% in U. S. Dollars and flat in local currency. We had single digit local currency growth in the Americas and Asia Pacific and were down modestly in local currency in EMEA. We are experiencing changes in consulting demand patterns and we see variability across our broad footprint by geography, industry and type of consulting work. We continue to see an increase in large transformation consulting projects, which are converting to revenue at a slower pace. In addition, we've seen a near term decline in small and medium sized consulting projects, particularly in EMEA. These patterns net net have resulted in flat consulting revenue growth this quarter and we expect this to continue through next quarter. Outsourcing revenues were $3,260,000,000 an increase of 9% in U. S. Dollars and 13% in local currency. We saw strong double digit growth in local currency in the Americas and Asia Pacific and single digit growth in local currency in EMEA. Now let me give you some highlights of our revenue growth in the operating groups. Health and Public Service revenues increased 13% in local currency, reflecting very strong growth in Health again this quarter with strength in both consulting and outsourcing and across the 3 geographic regions. Our investments in health continued to pay off in market pickup. We had good demand in public service this quarter, driven by very significant growth in Asia Pacific and growth in the Americas. Key drivers were our Human Services and Operations and Management offerings. Financial Services revenues increased 9% in local currency. Outsourcing revenues reflected significant growth, driven primarily in the Americas across all industry groups, particularly in Credit Services, where we made an acquisition last year and in insurance. Consulting revenues grew slightly, driven by Capital Markets and Insurance and this growth was partially offset by a slight consulting decline in Banking. The products operating group had local currency revenue growth of 5%, driven by very strong growth in outsourcing globally in both technology and BPL. From an industry perspective, overall revenue growth was led by retail and life sciences in all regions. Revenue in consumer goods declined as we are going through a cycle of near completion on large scale ERP work at a few large clients. The Americas grew double digits with EMEA and APAC flat year over year as strong outsourcing growth was offset by a decline in consulting for those two regions. Resources revenues grew 3% in local currency with outsourcing growth, particularly in energy, reflecting client demand ongoing support costs while increasing flexibility to meet operational priorities. In consulting, revenue was flat as growth in chemicals driven by ERP work was offset by declines in utilities and natural resources. Some clients primarily in utilities and natural resources have lowered their spend, a trend we expect to continue in the near term. Communications, Media and Technology revenues decreased 1% in local currency. Outsourcing continued to grow driven by our clients' focus on improving the efficiency of operations. CMT's consulting revenue declined in all three regions. This was most pronounced in EMEA and in communications globally, where the trend of certain clients deferring investments in core capabilities for traditional markets continued. There was significant consulting growth in high-tech in the Americas as clients increased their focus on building and improving systems for managing customer relationships. In emerging markets, there's renewed system integration activity to build core capabilities on new platforms. In summary, the revenue we delivered in Q1 was right in line with our expectations overall, a very good result. Moving down the income statement. Gross margins were 32.8% compared with 31.8% for the same period last year, a 100 basis point increase. This result reflected improved contract profitability, primarily in outsourcing and net lower non contract costs. Sales and marketing expense for the quarter was $868,000,000 or 12 percent of net revenues compared with $837,000,000 or 11.8 percent of net revenues for the Q1 last year. This quarter's results reflected higher business development costs to replenish our sales pipeline after our record Q4 bookings. General and administrative expense was $449,000,000 or 6.2 percent of net revenues compared with $433,000,000 or 6.1 percent of net revenues for the Q1 last year, a 10 basis point increase. Operating income was $1,050,000,000 in the first quarter, reflecting a 14.5% operating margin. This compares with $981,000,000 or 13.9 percent operating margin in the Q1 last year. A year over year expansion of more than 60 basis points, 66 basis points to be precise. This quarter, we were particularly pleased with our contract profitability, as I just mentioned, and also with our management of costs overall. Our effective tax rate for the quarter was 26.8 percent compared with 28.3 percent for the Q1 last year as this year's Q1 rate included higher benefits related to final determinations of prior year tax liabilities. Net income was $776,000,000 for the Q1 compared with $712,000,000 for the same quarter last year, an increase of 8%. Diluted earnings per share were 1 $0.06 compared to 0 point 96 dollars in the Q1 last year. The $0.10 increase is made up of a $0.07 increase from higher revenue and operating results, a $0.02 increase from a lower effective tax rate and a $0.02 increase from a lower share count, partially offset by a $0.01 decrease from lower non operating income. Turning to DSOs, our day services outstanding were 32 days, up from the low of 27 days last quarter and consistent with Q1 last fiscal year. Free cash flow for the quarter was negative $195,000,000 rounded, resulting from cash used by operating activities of 109,000,000 dollars plus property and equipment additions of $87,000,000 Both operating cash flow and free cash flow this quarter included the expected discretionary cash contribution of $500,000,000 made to our U. S. Defined benefit pension plan, which had a net impact on free cash flow in the quarter of $350,000,000 after tax. Moving to our level of cash. Our cash balance at November 30 was $5,700,000,000 It compares to $6,600,000,000 at August 31 last year. Funded the pension payment just mentioned and the semi annual dividend as well as some acquisitions in the quarter. Moving to some other key operational metrics. We ended the quarter with a global headcount of about 259,000 people and we now have approximately 167,000 people in our global delivery network. In Q1, our utilization was 88%, up from 87% in Q4. Attrition, which excludes involuntary terminations was 11% compared with 12% both in Q4 and in Q1 last fiscal year. Lastly, we expect that at least 50,000 people will join our company in fiscal Before I turn things back to Pierre, I'll comment on our ongoing objective to return cash to shareholders through share repurchases and dividends. In the Q1, we repurchased or redeemed approximately 3,000,000 shares for $221,000,000 at an average price of 66 point $7.4 per share. At November 30, we had approximately $4,000,000,000 of share repurchase authority remaining. Also in November, we paid a semiannual cash dividend of $0.81 per share for a total of 560,000,000 dollars This represented a $0.135 or 20% increase over the dividend we paid in May. With Q1 behind us, we've entered Q2 with solid results and strong profitability. We are pleased with our ability to deliver consistent results in what continues to be a challenging economic environment for our clients around the world. Now let me turn the call back to Pierre to give you an update on some exciting things going on in our business. And then I'll finish up with our business outlook. Thank you, Pam. Our Q1 results reflect the continued focused execution of our growth strategy, which as we shared with you at our Investor and Analyst Conference in October is all about differentiation and competitiveness. And at a time where the macroeconomic environment is still quite volatile, we are particularly pleased with our continued ability to drive profitable growth. Our focus on operating margin expansion reflects our commitment to running the business with discipline to enhance our competitiveness. And over the years, we have developed and nurtured this mindset across the company. At the same time, we remain focused on generating growth, winning the right business for Accenture and leveraging the latest industry and technology trends to provide differentiated services that create tangible business outcomes for clients. In particular, we continue to make excellent progress with our strategic initiatives in fast growing areas such as analytics, mobility and digital marketing. Increasingly, Chief Marketing Officers are becoming key buyers of our services and we are making strategic investments in digital marketing to enhance Accenture Interactive to better serve them. In Q1, we expanded our digital marketing capabilities with the acquisition of Aventa Worldwide, a provider of digital production services. Accenture Interactive Now includes an end to end solution that enables CMOs to manage content from its initial creation all the way through to distribution. Accenture Interactive was key to a recent win at a leading consumer goods client, where we are helping transform the shopping experience for customers with a new e commerce platform that will integrate online and offline channels across 41 countries. And we are combining our capabilities in digital, analytics and mobility to help Verizon Wireless launch a new strategic initiative called Precision Marketing Sites, which is designed to deliver targeted business intelligence to retailers and other enterprises that want to expand the reach and precision of their marketing efforts. Our clients continue to turn to Accenture for technology expertise, including the capabilities we have built on the Microsoft platform. We are helping a global financial institution migrate more than 300,000 Microsoft desktops, modernizing its IT infrastructure and reducing its application portfolio to increase efficiency. We will deliver this project with Avanade, our majority owned joint venture with Microsoft using proprietary assets to reduce migration time and costs. Avanade is important to our strategy of playing a leading role in the technology ecosystem and we continue to invest in the company. The recently announced acquisition of Azaleos Corporation will enhance Avanash capability to provide remotely managed services for Microsoft Exchange, SharePoint and Link. Our clients continue to invest to transform their businesses and we are bringing together the best of action for them, combining our industry expertise with our management consulting, technology and business process outsourcing capabilities. We are working with a leading European telecommunications client on one of the world's largest ERP implementations, creating a global shared services organization to standardize business processes with the goal of eventually delivering 80% of transactions through mobile devices. We are helping Global Spanish Bank BBVA with a landmark technology system upgrade in the U. S, Combining our core banking services with our Alnova software, we are helping implement a new system across more than 700 branches in 7 states. And just this morning, we announced that we have extended our BPO agreement with Unilever to provide HR services for more than 130 for us and we continue to invest in priority emerging markets as well as mature underpenetrated markets. In our priority emerging markets, revenues in Q1 continued to grow at a faster rate than Accenture overall. Our business in China, one of our key priority emerging markets is performing very well and we hope to a good start with double digit growth in Q1. I was in China 3 weeks ago where I had the opportunity to open the new Center for Financial Services in Beijing. This center combined with our new technology lab, which is also in Beijing, gives us a great environment to engage with clients to explore industry and technology innovation. And our business in the Americas is also off to a good start with 10% revenue growth in Q1 led by the United States and Brazil. In summary, I remain confident that in this fast changing environment, we are executing the right strategy, a strategy that is clearly aligned with the transformation needs of our clients. We continue to see strong demand for our services and our highly diverse portfolio of business combined with our industry expertise and growth technology capabilities positions us very well to seize the opportunities we see in the marketplace. With that, I will turn it back to Pam, who will provide our business outlook for Q2 and the full fiscal year. Thank you, Pierre. Now let me give you our update on how our fiscal year 2013 is shaping up. We continue to expect the growth rate in outsourcing to be higher than in consulting this year with consulting ramping up in the second half. As you and Lee expect of us, we remain focused and disciplined about driving our business for profitable growth. So let's start with our outlook for the next quarter's revenue and then go through the elements of our annual outlook. For the Q2 of fiscal 2013, we expect revenues to be in the range of $6,900,000,000 to $7,150,000,000 This assumes the foreign exchange impact of negative 1% compared to the Q2 in fiscal 2012. Turning to the full fiscal year, our assumption for foreign exchange is unchanged. Based upon how the rates have been trending over the last couple of weeks, we assume the impact of foreign exchange on our results in U. S. Dollars to continue to be negative 1% for fiscal 'thirteen compared to fiscal 'twelve. We will update you on our assumption for the full year foreign exchange impact each quarter. First revenue. For the full fiscal year, we continue to expect Accenture's net revenue to grow in a range of 5% to 8% in local currency over fiscal 2012. Although we expect to be close to the bottom of the range for the first half of the fiscal year, we also expect that year over year growth will pick up in the second half based on the revenue we have contracted and the strength of our opportunity pipeline. New bookings, we continue to target to be in the range of $31,000,000,000 to $34,000,000,000 for the full fiscal year 2013. As you know, our bookings can be lumpy from quarter to quarter and we do expect our bookings in Q2 to be higher than they were in Q1. We now expect operating margin to be in a range of 14.1% to 14.2% for fiscal 2013. This is a 10 basis point increase from our outlook of last quarter and a 20 to 30 basis point expansion over fiscal 2012. We are proactively balancing 2012. We are proactively balancing profitability with making necessary investments to position our business for the future. You should expect some fluctuations quarter to quarter as we've seen in the past. We continue to expect our annual effective tax rate to be in the range of 26% to 27%. As I mentioned in Q4, this tax rate range reflects some final determinations and there may be more that materialize during the year. For earnings per share, we are raising our outlook and now expect full year diluted EPS for fiscal 'thirteen to be in the range of $4.24 to $4.32 or 10% to 12% plus growth. The change primarily reflects our expected additional operating margin expansion. Now let's turn to cash flow. For the full fiscal year, we continue to expect operating cash flow to be in the range of $3,200,000,000 to 3,500,000,000 dollars property and equipment additions to be $420,000,000 and free cash flow to be in the range of $2,800,000,000 to 3,100,000,000 dollars We remain committed to return a substantial portion of the cash we generate to shareholders. In fiscal 13, we continue to target a return of at least $3,300,000,000 through dividends and share repurchases. I continue to be very proud of our Accenture leaders and all of our people around the globe as they're working very hard to conduct and drive our business in a way that delivers value to our clients, to our company and to our shareholders. With that, let's open it up so that we can take your questions. KC? Thanks, Pam. I would So just a couple of questions on the revenue growth front. Is there a common theme on what's causing the added demand weakness on small and medium sized consulting deals? And are you seeing any signs that those trends might change when calendar 2013 budgets are finalized, either change for the better or even maybe on the risk side, they could change for the worse. I mean, I'm just wondering what you're reading in the budget finalization process and how you're incorporating that into your guidance, given that it seems the challenge has been on the small consulting deals that sometimes I think are more difficult to predict? Yes, Rod. I mean, I think, first of all, it is more in EMEA that we see it, and not in all patches. So and you're right, it is the harder stuff to predict in a way because it comes in and typically converts to revenue during the quarter or fairly quickly. So we don't see it getting worse. We do see this trending up through the year and we do see a good pipeline for small and medium sized consulting projects as well as the larger, longer, more transformational ones. Okay. And so it sounds like you have some confidence based on what you're seeing in the pipeline and in the revenues you already have under contract that you have some confidence that your constant currency year over year revenue growth will accelerate in the second half of the year. Can you just comment on what some of the main underlying factors are that give you that confidence? I mean, which areas of the business are going to drive the reacceleration? That would be helpful if you can give some more specifics on that. Yes, Ward. This is Pierre here. And indeed, we are confident that in the other part of the year, our revenue will ramp up. And what's making us confident? A couple of things. I mean, first, we're building the pipeline. We continue to build the pipeline both in consulting and outsourcing. And second, we have the contracting revenue creating the visibility for us and making us confident that in the 2nd part of the year, we will have the expected growth as we are confirming here. Some of the highlights, if you will, we continue to see strong demand in all the new technologies. And I mentioned digital marketing, cloud, software as a service, also all mobility, all those new technologies continue to drive a strong demand. Of course, we continue to see a very healthy demand in all these related to outsourcing and BPO. And as well from an industry standpoint, we had pretty good news in Q1 regarding our HPS and financial services verticals. So we have facts making us confident that indeed we should deliver against what we've planned. All right. And then just one final clarification there. I mean, the revenue growth in constant currency being at 5%, I mean, I think that's a little bit disappointing on the Street. People were expecting that you'd be more in the middle of that range in the first half of the year. Is the softness in revenue growth in the first half more a function of your large deals ramping slower than you might have expected? Or is it more a function of the small consulting deals just not coming in at a fast enough clip to allow you to be higher in that revenue growth guidance range? Rod, it's primarily the former, but there is some impact of the latter too as I mentioned in my comments. And just by the way, when we put together our plan last summer, this is exactly what we expected in terms of the first half is that it would be lower in the lower growth in the second half. Got it. All right. Thank you guys. Thanks, Rod. Our next question comes from the line of Tien Tsin Huang with JPMorgan. Please go ahead. Great. Thanks so much. I just want to ask a quick first about Asia. It looked like it slowed a little bit relative to the other regions. Anything unusual there to call out? How did it perform versus plans specifically in Asia? No. Again, I mean, we're pleased with where we are in Asia with our growth of 8%. Yes. If you look at where we are, we have some good results in some very important countries for us. I'm thinking about South Africa. I'm thinking about India as well. So we continue to make some good steps in Asia. And again, we are where we want to be. Yes. I mean Asia is now Asia Pac is now 15% of our business. And as you know, we've had very strong growth over the last couple of years. Frankly, in looking at this, we still had good high single digit growth in the kind of anchor markets, Japan, Australia, Singapore and as Pierre just mentioned, very strong growth in China and India. So overall, we were pleased with these results even though this growth has moderated from the very high levels over the last couple of years. Yes. No, it's good growth. Just surprised to see it coming a little below the Americas is all. That's helpful to hear. Just as my follow-up, just Pam on the buybacks, I guess that's also running a little bit below trend. Anything to read into on the buybacks or is that just a function of timing with the pension contribution? Yes. I mean it's early in the year. And 3 months ago, we did see more uncertainty in the broader market. And as we sit here today, we're committed to return the $3,300,000,000 and to ramp up the repurchases in the latter part of the year. Got it. Okay. Thank you so much. Our next question comes from the line of Katy Huberty with Morgan Stanley. Please go ahead. Yes. Thanks. Just a follow-up on the consulting business. You talked about weakness in Europe. Did you see weakness in the U. S. Around the fiscal cliff uncertainty that would maybe start to get pushed through assuming we get a resolution here in the near future? I relate that to Pam, especially in the U. S. Yes, we'll let you do France, Pierre. So in the U. S, we haven't seen a lot of impact from the fiscal cliff. I mean, we've assumed Katie that the executive and legislative branches of our government will reach an agreement and our guidance was based on the fact that positive growth will continue in the United States. Okay. And then as a follow-up, Pam, I think you've talked about in recent quarters sole source win rate in the 60% range, which is above the historical average, clearly a sign that you can continue to take share. But when you compare your guidance of 5% to 8% growth, it's only slightly ahead of the 5% growth rate for the market. Is that just conservatism? Or do you have less confidence in the market growth or your ability to take share this fiscal year? Well, sometimes it's just sort of how the timing works. And I think that this pattern in consulting that we've seen of these bigger, longer deals that are converting to revenue slower, that timing is impacting our growth rate, particularly in the first half of this fiscal year. Okay. And the sole source win rate is still up in the 60% range? Yes, it is. All right. Thank you very much. And we believe that with 5% to 8% we will indeed gain market share. Your next question comes from the line of Ashwin Shirvaikar with Citi. Please go ahead. Thank you. I guess my first question is on the pipeline. You talked about replenishing the pipeline. Can you comment on how that effort is progressing and the types of contracts that you're seeing in the pipeline nowadays? Is it how different is it relative to say 12 months ago? Ago? Well, Ashwin, I mean, one of the things we're very focused on was rebuilding the pipeline for the largest deals that we do, we call them megas. And indeed that part of our pipeline was up significantly in Q1 because we had a very large bookings quarter in Q4. So that's one bit of color I can give you. And otherwise, our pipeline is up because we did indeed put focus on that in the Q1 to get us well positioned for the rest the year. Okay. And with regards to revenues, you guys did say in the past obviously that 1Q and 2Q would be weaker with the second half pickup. So that's kind of expected as before. But relative to 2Q, is there anything different that you're looking at now given all the uncertainty sort of I would call it incremental uncertainty in Europe as well as fiscal cliff related uncertainty here. Are you kind of sort of should we sort of be writing off December January and it's sort of a 1 month quarter that kind of weakness? I mean to comment on this, I mean, Kelly, we've not seen any change in the marketplace relative to the element you're mentioning. As you might imagine, we're watching carefully what's happening, but we've not seen in December any changing pattern regarding our clients. And as we said, we are particularly pleased with our performance in Americas including the performance in the U. S. For Q1. Regarding the Q2, we are providing our direction and we have no reason to change our view on Q2 at this stage. Do you think go ahead, Ashwin, sorry. No, no. That's all the questions I had. Thank you. Thank you. And next we'll go to the line of Bryan Keane with Deutsche Bank. Please go ahead. Hi, Brian. Mr. Keane, your line is open. There we go. The old mute button got me. Just I want to ask about EMEA. It was up 10% in constant currency in 1Q 2012 and 2Q 2012. Then it dropped to 4% in 3Q and then it back up to 8% in 4Q. So I thought we were kind of out of the woods, but now we're now flat in the Q1 of 2013. So is that just the volatility in the market? Is that all consulting? Just looking to make sure I understand what exactly is happening in that region. I will start with EMEA because I'm a native there. So indeed, we are flat, but as always, as you know, it's covering multiple countries. I mean, first, we're overall pleased with part of the performance and outsourcing continues to do very well in that part of the world. And if you look from a country standpoint, we're doing very well in countries such as Germany, for instance. And we are flat to positive in many important countries for us such as the U. K, such as Italy, such as Spain. So again, you need to look at least from a portfolio management standpoint. We are where we expected to be and I think we've always been very clear in the prior quarters about the direction and how the Q1 would shape EMEA, but we continue to see some positive trends there and opportunities. Okay. That's helpful. And then just a couple of quick ones. On consulting, obviously, it was flat in constant currency. Should we expect it to be around flat again or could that turn negative this quarter? Yes. I believe, Brian, it will be flattish again, a little up, little down. But I mean, I think it will be a similar pattern to the Q1 and the second and then, pick up into positive digits in the second half. Okay. Last quick one. Headcount growth, I think you said would be around or over 50,000. That's a little bit below I think the 60,000 that you mentioned last quarter. I just want to see if that's correct. And then secondly, contracted revenue for the next four quarters with 9% last quarter, just looking for an update. Thanks so much. Okay. First of all, you're right. We say now we're going to hire at least 50,000 people and I think that reflects a few things. One is that attrition is down and second, you'll see that we do we have had a nice increase in the global delivery network and we're carefully, as I think you'd expect of us, managing supply and demand around the world and getting positioned for the business building in the latter part of the year. We hired a number of people, a lot of people in Q4 and so it was down a little bit in this quarter. Regarding your second question, we're up we have about 8% more under contract over the remainder of the year versus this time last year. Super. Thanks for the color. Pretty close in both consulting and outsourcing. Okay, great. Thanks. From the line of Julio Quinteros with Goldman Sachs. Your line is open. Hey, guys. Just thinking about the bottom up build of the model little bit, I think as we always do. I'm still heavy appetite here for some numbers. On the utilization front and thinking about pricing and really the levers, right? So of course, you guys have already sort of communicated and conveyed the confidence that you guys have in getting to the numbers and the targets. But sort of thinking through on some of the maybe more of the just mechanics of the model. If headcount has already been reduced a little bit in terms of the gross head plan for you guys, obviously, attrition is helping some there. But if pricing doesn't come through or if utilization is already running kind of high, what will drive that acceleration into the back half of the year? And some of it, I guess, could be some of the acquisition benefits, some of it could be the kind of more nonlinear components. I'm just trying to get my arms around how best to think about the drivers that could help in the back half of the year? Well, I think the I think on the people side, I mean, we're getting the people where we need them and that part is what we need to do. So I'm confident that we're going to do that. And it's really just to match that up with the consulting growth as it materializes. So I think the main levers we have and we had some really good progress on this quarter where we are I think, doing better than ever in terms of cost management and that kind of rigor and discipline about making sure we have that everywhere on contracts, in non contracts and then pushing for pricing where we can and where the business cases are best, we can. So we will never give up on that and that's always a part of what we do. Prices overall were relatively stable this percentage of your revenue, is there any color that you guys can share in terms of how as a percentage of your revenue? Is there any color that you guys can share in terms of how big that could be at this point as a percentage of revenue? I would characterize as being probably stable. We continue to make investments in solutions and software on a very targeted and specific basis. I mean, we called 2 recent acquisitions we made, 1 in the technology Microsoft Technology and the other one around the digital marketing. And again, it's the same spirit so far. It's to invest in very niche and specific software to provide differentiated solutions. That's what we do and that's what we'll continue to do. Of course, through our BPO and some of those activities, there is a less linear correlation between the people and the business. But overall, there is no change with our current strategy. Okay, great. Thanks, guys. Happy holidays. Thank you, Julio. Thank you. And we'll go to the line of Jason Kupferberg with Jefferies. Your line is open. Hey, thanks guys. Happy holidays. I wanted to ask a follow-up question on consulting. I think you guys were pretty clear the first half will be flat in terms of revenue growth and then move into positive territory in the second half. But just to probe that a little bit further, I think last quarter you had said for full year fiscal 2013 low to mid single digits is the constant currency range you were expecting. Sounds like that's still doable, but I just wanted to test that a little bit. Is the lower end more likely just where it looks like you'll be through the first half of the year? I know you're going to have some easier comparisons certainly helping later on in the year, but I just wanted to make sure we have our expectations calibrated properly if in fact the lower end now looks more likely. Well, I mean, I certainly agree with part of what you said, Jason, which is that for the first half flattish and for the full year, low to mid single digits. And so that means that we're going to come up into the mid single digits positive, maybe a little higher in the second half of the year in consulting. Okay. Okay. I mean, I guess what I'm just getting at is the higher end of the range still realistic when you think about the low to mid single digits for the full year? This is for consulting or the 5% to 8% overall? No, consulting only. Yes. I mean based on our pipeline, I mean in consulting we have stuff to convert, right? So execution is up to us. But yes, we see that. Okay. Okay. Understood. And just to switch gears a little bit, we've been hearing and reading a bit more about some of the big four accounting firms substantially increasing their non audit businesses in areas like consulting. I know that's been going on in the past few years and they're probably going to be encountering some of interest questions around that. But are you seeing or experiencing any more competition from those types of firms out in the marketplace? I mean, clearly, you guys are gaining share overall on a global basis across the competitive landscape. But any uptick in competitiveness from this group in particular? I mean, clearly part of our I mean, our competitors. As you know, we competing against everybody in all the different segments of our business from management consulting to technology to AO. That's the nature of our business. And I mean, believe me, when we have more competition, it's just pushing us to do better. So we love that. Okay. All right. Great. Thanks. We'll try to continue raising our game to compete, to win and to gain market share. Okay. Thank you. Our next question comes from the line of George Price representing BB and T Capital Markets. Hi, good afternoon, everybody. Thanks for taking my questions. Just I kind of wanted to just follow-up on a couple of the questions that have been asked regarding consulting growth and kind of how that's going to trend. I know you just addressed it with Brian and then with Jason, but is I guess is the expectation based on consulting work that's kind of contracted or is that mainly pipeline? You alluded to pipeline, but I guess I want to sure that that was more the case. It's both. It's what's contracted as well as pipeline. And remember, we have that effect of the longer larger and longer consulting deals that are bleeding in at a slower pace, right? So that's going to start to really take in the 2nd part of the year. And again, I mean, keep in mind that if you're looking at the last quarters, our consulting bookings remain very strong including in Q1 about the €4,000,000,000 mark. So the point is exactly as Pam mentioned is the nature of the consulting demand, which has changed from longer term more longer term and less shorter term. So there is a kind of conversion rate from booking to revenues, which is different. But this is our expectation that indeed those very strong bookings we had in these last quarters will convert in revenues. Okay. In the second part of the year. I'm sorry, Pam, I think I cut you off. Yes. No, no. And I'm just going to add that the book to bill for consulting, which I'm sure you've already calculated is 1.1 in the Q1. Right, right. Okay. Has consulting growth bottomed in Europe, do you think? I think we're turning the corner there overall. And of course, it's a little bit not every operating group or every industry or every country is like. There's some variability, for sure. But we are really starting to turn the corner in my view. And of course, we look at sequential and how that's doing and we see that happening overall obviously in order to predict the growth rates in the second half of the year. Okay. So would I guess you it kind of sounds like Q2 is going to be the bottom overall and that's consistent you think with Europe. Is that fair? I do. We do see EMEA picking up in the latter part of the year in consulting. Okay. And last question, you talked about SI bookings last quarter were obviously a record. And this quarter, I think you mentioned that they were holding their own. Were they just a little bit of it, I don't know, maybe a little subtle change there in tone. Were they up actually year over year? And could you maybe talk a little bit more about what you observed in terms of changes in bookings for SI? Yes. I actually meant to communicate that as a positive in terms of SI bookings. And because despite we continue to have some shift to the global delivery network and despite a few of these other patterns in terms of the shorter term stuff that actually the book to bill and system integration was very good. It was in management consulting where it was off a little. Okay. But SI was up? It was up. Up year over year, I'm sorry. I'm let me we'll check that. I just want to make sure I'm accurate before I answer. Okay. All right. Great. Thank you. Thank you. Our next question is from the line of Darrin Peller, Barclays. Please go ahead. Thanks. So just to follow-up, I mean you mentioned strength in some of the larger albeit slower consulting projects, but some weaker trends in smaller size deals I think in terms of the consulting side. In other words, your 2013 growth doesn't have as much benefit from these smaller more nimble deals. How big of a contributor would that normally be for you in terms of growth contribution? In other words, how much are we missing from the smaller size deals? We don't I actually don't have that to provide to you exactly, but we do see I mean, I personally think the fact that we have a greater proportion of these longer larger, in my view, stickier consulting work that's ultimately better for our business. And so, again, this trend, the way it leads through is important to it does impact the growth rate in a given quarter and certainly this quarter and next we see that. But nonetheless, I think in general, it's a positive trend. And just back to the other question, system integration bookings are up 3% in local currency. Yes, I would pile on this and it's a very positive trend. Again, I mean, if you look at the consulting booking, just to confirm, I mean, €4,200,000,000 on a book to bill which is over 1. So we are building I know backlog is not the right terminology, but I'm an old fashioned guy. So we're building contracted revenues moving forward. And indeed, the fact that we are contracting on longer term consulting will make over time our business more resilient with more visibility over time. Now it's happening that for a typical quarter it is creating the effect you see, but it's making us confident that over time and at the second part of the year those contracting revenue will generate consulting growth. Right. Right. I mean, I think that's fair. It's definitely a good trend. I think we're just trying to understand how much of a call option there is to the upside when this kind of business does return the more nimble probably cyclical projects come back a little more strength. But I hear you. I mean I think long term business obviously is beneficial. Just a quick follow-up if you don't mind on the pricing side. We've heard from some of the larger Indian based outsourcing firms that pricing has come down a bit and a bit them at least some of them to gain back some of the market share. Are you seeing that anywhere? From a pricing standpoint, I think we will call the pricing stable with as always some pockets of improvement, but let's say stable overall. Right. Great. All right, guys. Thank you. Thanks, Karen. Tom, we have time for one more question then Pierre will wrap up the call. Okay. Thank you. Our final question today will come from the line of Joseph Foresi with Janney Montgomery. Please go ahead. Hi. Hi, Joe. Hi, how are you? My first question was just you talked about going forward that the bookings were going to pick up next quarter. How should we think about that in relation to the current decision making and business trends? Is that an indication that that's continuing and the momentum is picking up heading into the year? I think it's a little bit more about us going from the high bookings in Q4 to this quarter and just how we've been building our pipeline and how we see the stuff converting over the course of this quarter. And we're actually already off to a decent start. So I think a lot of it is or at least portion of it is related to us. And then in terms of the environment, we commented we did not see really anything specific that's leading us to think that there's any kind of pause going on right now in terms of the kind of work that we're signing up. Okay. My second and last question, just you talked about consulting projects and more large deals coming in and less small deals. So I guess it's probably 2 parts to this question. First, why would people be more willing to commit to the large deals than the small deals? And is that based on geography? And also based on the fact that this is going to be back end loaded this year, I'm wondering what would potentially derail that? Would that take a shift in the macro for that to change at all? I think the reason not just aren't as critical, some of the smaller stuff. If you look at what's happening, not just aren't as critical, some of the smaller stuff. If you look at what's happening with the big banks, for example, and certainly geographically, that's the case. The kinds of things they need to do are different than they were in the past based on the transformation that's going on in the industry. And that's true with the big telecom companies as well. So I think a lot of it is that. Yes. I think that's exactly right. What we see and this is what's making us confident despite all the volatile and uncertain environment we see is the transformational business is still there because all the giants, so big companies and global leaders we are serving, they need to comply with new regulation, they need to be more global, they need to rationalize and they need to do all of this at scale. And this is what I think was reflecting in the couple of illustration I made earlier. I mean look at what we just contracted today or we announced today, not contracted with Unilever. It's just a good illustration of what's happening. So our positioning on the transformational business, high end large scale program is resonating with our clients and is aligned with their needs. And we continue to see that type of demand in the marketplace. That's why we are remaining confident. Okay. Happy holidays. Okay. So thanks again everybody for joining us on today's call. With the Q1 behind us, again, we remain confident in our ability to continue to drive profitable growth with a sharp focus on providing highly differentiated services to our clients and improving our competitiveness in the marketplace. As I travel around the world, I can see the opportunities in front of us and I can tell you that the men and women of Accenture are fully mobilized and focused on delivering value for our clients and for Accenture every day. I want to take this opportunity to wish all of you, our investors and analysts, but as well our Accenture people who are listening to the call a very happy holiday season and all the best for the New Year. We look forward to talking with you again next quarter. In the meantime, if you have any questions, please feel free to call KC. All the best and happy holiday. Ladies and gentlemen, this conference will be available for replay after 7 p. M. This evening and running through March 28, 2013 at midnight. 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