Let me welcome everybody who has joined us on the webcast, as well as those of you back from our brief break. I'm KC McClure, Managing Director of Investor Relations. For those of you who have joined us today via the webcast, you will be able to find the remarks from the earlier part of the session posted to the investor relations section of our website. We expect to have those posted over the next couple of days. I would like to remind you that some of the materials we will discuss in today's conference constitute forward-looking statements relating to Accenture's operations and results. We wish to caution investors not to place undue reliance on such forward-looking statements. Any statements other than statements of historical fact may be forward-looking. In particular, information about our financial goals and our capital allocation strategy, including share buybacks and dividends, are forward-looking statements.
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 in the presentations and are not a guarantee of our future performance. Such risks and uncertainties include, but are not limited to, general economic conditions and those risk factors set forth under the Risk Factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission. As always, Accenture assumes no obligation to update any statements made in these presentations or to conform such statements to actual results or changes in Accenture's assumptions and expectations. I would also like to remind you that we will not be providing you with an update for or making comments related to our first quarter of fiscal 2013.
With that, let me turn it over to our CFO, Pamela Craig.
It's great to be here with my colleagues, some of our very top leaders, bringing alive, as well as around the world, what we do for a living. Not only today, but also how we are positioned to drive our business in the future across our broad and deep base of clients, industries, and markets. Two weeks ago, I provided our fiscal 2013 business outlook. My intent today is to connect it to our consistent and enduring financial goals. To set the stage for that, let's start with how we finished our fiscal 2012. The year was strong across the key dimensions of our business. We met or beat all of the elements in our original annual business outlook, including the three financial goals you see here.
Net revenue growth of 11% local currency, above the market growth and above the 7%-10% range in our original business outlook. Double-digit earnings growth per share of 13%. The return of $3.05 billion of substantial cash to shareholders through $2.1 billion in share repurchases and $951 million in dividends. We focused on sustainable, profitable growth. We delivered, and our results reflect performance that differentiates us in the marketplace. Our financial goals have been consistent, they endure. Our track record against these goals has been one of continued and sustained performance, we are focused on growth over the long term and on delivering it in a high-performance manner. That is, with rigorous execution along the way. This is fundamental to our success. How we see fiscal 2013 fits right in with this philosophy.
Our current position of strength, evidenced in our Q4 bookings, is a great foundation to build further upon. A reminder of our three financial goals. First, revenue growth to grow faster than the market. Second, earnings per share to continue growing in double digits. Third, our balance sheet to maintain its strength and to return a substantial portion of our cash to shareholders. Let's turn now first to the market growth. As we look forward in the context of these goals, let me share with you how we look at the market. That is, the addressable market for the kinds of services that we provide. We rely on external analyst data from IDC and Gartner for market growth estimates, then we analyze and consolidate their data into a view that aligns as close as we can to our addressable market and fiscal years.
On the left side, you can see. Go back one, please. On the left side, you can see that our addressable market in fiscal 2013 currently is expected to grow at 4.8%, which is 80 basis points lower than the estimates we had 18 months ago when we shared them with you at our 2011 Investor & Analyst Conference. Our net revenue range outlook of 5%-8% for fiscal 2013 is above the point estimate derived from the external analysts. The lower end of our outlook does assume that the market could end up growing at a still slower rate than that 4.8%. On the right side are some details of the changes from the underlying growth numbers shared 18 months ago.
Our estimated fiscal 2013 growth in both management consulting and technology actually came down about a point to 5.8% and 4.3%, respectively, with no significant change in BPO. BPO's stronger market growth of 6.1% echoes the trends that we've seen in our business. By geographic region, since 2011, growth estimates for fiscal 2013 are up half a point in the Americas, but down substantially by 2.6% for EMEA and down 60 basis points for Asia Pacific. Net-net for fiscal 2013, both the Americas and Asia Pacific are now estimated to have market growth of about 6% with lower growth in EMEA of about 2.7%. Let's turn to us, Accenture. If we look back over the last decade, we've grown at a compounded annual growth rate of 8% in local currency since the end of fiscal year 2003.
This growth rate, in the context of the addressable market analysis I just mentioned, has averaged 4.5% above the market's growth. The last times that we met in this forum, I talked about different parts of our work transitioning to our global delivery network, and that we had considered that trend. During the downturn of fiscal 2009 and 2010, key positioning that we did allowed us to accelerate the shift of work to the GDN, driven at that time, as you remember, largely by client demand. As a result, while revenue growth was declining in those years, we were gaining in the volume of hours. This increase in volume then created a platform for our growth in fiscal 2011 and 2012. While we continue our multi-year transition to the GDN, we now have a more scaled base to keep building upon.
We are focused on the long term, as we always have been, with the objective of steadily taking share along the way. Uncertainty, as Pierre mentioned and as Sean mentioned, in the macro environment continues, and our intent is to continue to proactively manage through it. Sean often shows us these Economist covers, which so creatively highlight some of the key risks in the macroeconomic environment. The hard landing of the Chinese economy, significant worsening of the European sovereign debt crisis, stalemate on resolving the U.S. fiscal cliff, and higher commodity prices creating inflation and growth risks. As you would have expected of us, we consider these and other external influences in the scenario planning that we update and discuss regularly with our management team and with our board. With that in mind, let's turn to our first financial goal.
For fiscal 2013, we are targeting 5%-8% net revenue growth in local currency. I should note that this range includes a normal level of acquisition activity, and that is, we do not see our revenue growth overall materially impacted by acquisition activity. Our core business across management consulting, technology, and BPO continues to be extremely important and large. The core represents the major portion of our revenue in fiscal 2013 and in the years beyond. Our clients are dealing with the business trends that Pierre references. Globalization, regulation, rationalization, and technology innovation. Our ability to uniquely combine our core capabilities to provide industry-based end-to-end services clearly differentiates us in how we are able to deliver value to clients. We see clear opportunity across the industries and markets we serve, and we see evidence that business services are taking hold.
For the 33 clients where we had new bookings greater than $100 million in fiscal 2012, over half of them included a substantial blend of both consulting and outsourcing services. Our core offerings and capabilities are very often the centerpiece of these services. By the way, our leader is on vacation in Africa, so that's why you didn't hear from him today. Our management consulting business is a key source of differentiation. We have over 17,000 industry-dedicated professionals globally. Our ability to take our capability to the market as part of an integrated end-to-end business solution sets us apart in the marketplace. Marty Cole and Paul Daugherty shared today that technology is the backbone of our business.
Our differentiated delivery capability, powered by 162,000 professionals in our global delivery network and an unmatched blend of technology and industry skills, equip us to take on some of the hardest and most critical challenges that our clients face, including anticipating new technology waves, which Paul so aptly got into for us, and integrating them in their businesses to drive the most value. Our BPO business has significant growth potential and, as Mike Salvino brought to life for us, has evolved to be an industry leader. It is approaching a $3 billion part of Accenture with significant market presence and top 3 market share. Our core business is healthy. It's diverse, durable, and evolving, which continues to differentiate us as a leader in the marketplace. Let's turn now to our strategic growth initiatives. Same ones we've been showing you the last couple of years.
Building on our core, we have these, and we've been telling you about them and the opportunity for them to grow to be billion-dollar parts of Accenture. We've measured significant growth in these initiatives since we first shared them with you two and a half years ago. Here are some milestones. Analytics was our first billion-dollar strategic growth initiative. Actually crossed that level in fiscal 2011 and was almost $2 billion in fiscal 2012. Steve gave you some great color on our business in health, which also surpassed a billion dollars in both fiscal 2011 and fiscal 2012. Paul talked about mobility and cloud. They both crossed the billion-dollar threshold in fiscal 2012, as did Accenture Software and Related Services. Accenture Interactive, we formerly called it Digital Marketing, and Smart Grid, each had very significant growth in fiscal 2012 and are on track to join the others.
Now our focus is to continue their growth, and we are raising the bar and have added multi to our aspiration. Turning now to the priority emerging markets and this third area of growth. In fiscal 2012, they grew 16% in local currency, coming off 30% growth in fiscal 2011. We project that the group's local currency growth will continue at a rate well above the Accenture average into foreseeable future. We heard today from 4 of the PEM leaders, and they're each expecting to grow double digits in local currency in fiscal 2013. As Pierre said, we are still very focused on making our priority emerging markets a more significant part of Accenture over the medium term. One other note, Australia crossed the billion-dollar threshold in fiscal 2012. Let's turn now to our second goal, profitability.
We remain focused on driving growth at the bottom line, and our target for fiscal 2013 is EPS growth of 10%-12%. Now, when it comes to profitability, we've been focused on modest margin expansion with an average of 20 basis point per year improvement over the last five years. As always, we will balance between investing in our business, as Sean so well described earlier, and delivering sustainable margin expansion as we continue to scale. As you know, our investments primarily flow through our margins, including gross margins. Our history tells the story of strong earnings per share growth coming from all aspects of managing our P&L, but with the outsized contributor being revenue growth in purple there. These are high-quality earnings. Our leaders are focused on profitable revenue growth. It is in our DNA.
In fiscal 2013, we expect the key driver of earnings per share growth to continue to be revenue growth of 5%-8%, but also critical to EPS is how we deliver that revenue profitably through operating margin. We remain confident in our ability to continue to modestly expand in a sustainable way. We will work the lever. First, by rigorously managing the quality of the contracts in our portfolio and driving pricing through differentiation. Second, by focusing on our labor costs, our biggest operating expense. This means constant management and balancing of market-relevant compensation, supply and demand, utilization, and payroll efficiency. Third, by staying committed to industrialization, as Sean laid out, our methods, processes, tools, and of course, leveraging our global delivery network, which Marty elaborated on. Fourth, by continuing our efforts to drive down our selling costs as well as managing the growth of G&A.
As I've said in the past, I will never give up on modest operating margin expansion. Moving to our tax rate, the fiscal 2013 range is between 26% and 27%, slightly lower than fiscal 2012. We're always looking for tax efficiencies. A number of factors can impact the tax rate year to year, including evolving statutory tax rates in the countries where we do business. This, of course, makes it a challenge to predict the rate over the long term. Finally, in terms of share count, we continue to expect about a 2% reduction in our average diluted shares outstanding as we plan to continue to buy back more shares than we issue in fiscal 2013. On to the last goal here.
Our third goal is to maintain a strong balance sheet and cash flow and to return a substantial portion of our cash to shareholders through buybacks and dividends. For fiscal 2013, we expect to return cash to shareholders of at least $3.3 billion. We've returned about 90% of our free cash flow since our IPO. Our strong cash balance provides us with even more flexibility to deploy capital opportunistically. For example, we announced that we would make a discretionary contribution to our U.S. defined benefit plan of $500 million. Our industry-leading DSOs have been and will continue to be a hallmark of our company-wide focus on cash generation. One of the ways we return cash to shareholders is through our dividend.
We have a demonstrated history of growing our dividend each year since we introduced it in fiscal 2006. As you can see there in fiscal 2010, we transitioned to a semiannual dividend. Of the various payout metrics that we use to measure growth, dividend as a percentage of prior year net income is one that we continually evaluate. In fiscal 2012, the dividend is approximately 40% of our prior year net income, up from roughly 20%, doubled, in fact, when we first introduced the dividend seven years ago. Fiscal 2013 shows the first semiannual cash dividend of $0.81 per share as declared by our board last month and payable in November. In addition to dividends, share buybacks have been a consistent way for us to return cash to our shareholders.
We believe that repurchasing shares in the market on a consistent basis is in the best interest of our shareholders. We will continue to recommend this strategy to our board. Let me spend a couple of minutes on capital allocation. We believe a responsible capital allocation strategy has to be flexible and sustainable. It should support growth in our business and then return surplus capital to shareholders. Very simply on this slide, the left side shows cash in and the right side depicts how we look to allocate it. While we reexamine our strategy annually with our board of directors, we thought it important to also share with you our current thinking about capital allocation. The core driver of the flexibility in our capital allocation model is that we are cap-light.
As shown on the right side, we see capital expenditures running at about 10% of operating cash flow. We earmark about 15% of operating cash flow to fuel our strategic and targeted acquisition strategy. That leaves a significant level of generated capital that is available to be returned as cash to our shareholders through a combination of share buybacks and dividends. We are now running at roughly a 2 to 1 ratio of repurchases to dividends. At this 2 to 1 ratio, we have significant flexibility to sustain our dividend-paying capability. In addition, it provides us the flexibility to redirect capital spend should an attractive or compelling opportunity arise. There's another 2 to 1 ratio that we think is important here. That is the continuing relationship of the impact of share repurchases to share issuances on a weighted average to diluted shares outstanding.
Just bear with me here. We expect that the impact of both together will be about a 2% reduction in our share count per year. The key point here is that we do not see a scenario when these lines will cross. That is, we do not foresee a time when share issuances would exceed share repurchases. Let me tell you a little bit more about why. Our employee share purchase plans are purchase programs which have caps on participation levels. When it comes to our performance award grants, the vast majority go to our senior executives, a population that by design has grown much slower than overall headcount. Senior executive growth has been about 3% versus 9% for the whole population since fiscal 2007. We do expect that trend to continue. Funding performance equity grants is discretionary and aligned with achievement of our financial goals.
All awards are dollar value denominated. They're not driven by the number of shares. The number of shares issued therefore varies by share price. This is a natural hedge to repurchases. Lastly, we proactively manage the overall affordability and dilution of our equity programs, which we know are key to instilling owner/operator behavior in our leaders and to retaining our high-performing people. We believe this approach to capital allocation, combined with our cap-light investment model, is the right strategy to deliver industry-leading shareholder value.
To summarize, we have financial goals to grow revenue faster than the market with 5%-8% growth for fiscal 2013, to achieve double-digit EPS growth with 10%-12% in fiscal 2013, and to continue to maintain a strong balance sheet and cash flow and to return at least $3.3 billion of our cash to shareholders through buybacks and dividends in fiscal 2013. Our cap-light strategy supports our culture. We embrace change, and then we nimbly move on it. Of course, the most important elements of all this are our clients and our people. Our relationships with our clients are sustained by the value we deliver to them day in and day out. Our shared drive for high performance means that we're focused on developing the best talent, on building relevant market-leading offerings, and on delivering outcomes that help our clients move their businesses forward.
Operational and financial excellence underpins everything we do, and we do this with superior leadership from the team you saw today. As we start fiscal 2013, we feel good about our ability to continue to lead by driving growth, balancing priorities, and managing our business as you and we expect of us. I'd like to ask our CEO, Pierre Nanterme, to join me on stage for some more Q&A. Got my glasses on so we can see everybody.
Thank you, Pam, and again, excellent presentation. I think you would certainly recognize that our finance operations are in extremely good hands, that we have a clear strategy in terms of our finance. We have a clear trajectory. You can see that we are consistent in the way we allocate, and we've been reasonably predictable. We feel good, and that's our style. I know probably Pam and I, on our back people would call us R&D, rigor and discipline. I think this is what you've seen here. When you're managing an organization of that size, you need rigor and discipline, clear trajectory, and then to deliver, and this is what the management team is doing. Thanks, Pam, for all of this. That being said, we have time for questions.
We do.
Let's go.
Hi. Joe Foresi from Janney Montgomery.
Hey, Joe.
Pam, you had talked prior before about there being a slowdown on the consulting projects and some of the decision making. Can you help us reconcile that with the bookings last quarter? As you look, maybe not so much into 2013, but are we going to see a separation on the decision making in different verticals and geographies? Do you think some will be doing better than others?
Yeah, there are always geographic differences to start with. I think just in terms of the decision-making part, it was more the complexion of the kinds of projects that we're booking in consulting. We see less of the smaller kind of quick-turn projects that maybe don't have as much impact, and more of the larger ones that I think do end up delivering more value. It's not so much decision making, it's maybe different kinds of decisions, and then how these then bleed through into revenue is taking longer.
Does that have any implications for discretionary spending? Is it more discretionary, what you're seeing a slowdown in? I'm just trying to get a full picture of it.
I'm not sure I would characterize that because I think in this world, I'm not sure there is a lot of discretionary anything in this economy. I think what we're seeing is that clients are very focused on value, on outcomes, and on driving those kinds of projects today.
Yes.
Yes, thanks. Katy Huberty, Morgan Stanley. Pam, the operating margin expansion guidance is in line with your long-term goal, but it is at the lower end of historical ranges. Can you just talk about, is that entirely a function of a little bit lower revenue growth, or is there a message on pricing or investment strategy? Thanks.
It's 10-20 basis points is what we guided to. The averages we showed you was 20. We'll be shooting for the 20, guiding for the 10-20, which, so I don't really think it's below that. That said, we are investing in our business. You heard about that from Sean, and we're going to continue to do that, and most of those investments do flow through the P&L. Our objective is to actually manage this really tightly by design.
No change in our overall philosophy with this. We believe that's exactly the right objective and the right balance with the necessity to invest with continuing with our modest margin expansion, to paraphrase Pam.
He doesn't let me paraphrase him on rigor and discipline, though. I had it in my script in Q4, and he made me take it out. He said, "Those are my words.
Here.
It's Bryan Keane, Deutsche Bank.
Where are you, Bryan?
I'm right here. Behind you.
Oh, okay, Bryan. Yeah.
One of the slides you had up showed a lot of market share gains, specifically in the last two years. I think fiscal year 2011 showed 12% gain above market, 8% in fiscal year 2012. This year, it looks like you don't expect, at least given the guidance, you don't expect a lot of more of that market share expansion. The question is it easier to gain market share for Accenture in an expanding, accelerating economy versus maybe a declining or slowing economy? Because if you look back, fiscal year 2010 and 2009 actually didn't have a lot of gains, and the last two years did.
Yeah, now on this, again, we believe that first we've got to see what the market would do. You know the result of the game after the game on this, regarding the IDC and the other analysts. When you look at the 5%-8%, definitely we're shooting for a guidance which is above the market. If you look at the top end of the range, that would mean a good market share expansion. I feel this is consistent with what we've been doing so far.
I think one of the other things to just point out is that in 2009 and 2010, where it really looked like versus the market, we hadn't done so well, what was so interesting about that was the volumes and how they had really grown in the GDN. When you did the compare into those next years, I think there was a lot of that in those numbers that weren't necessarily reflected in the top line those years.
Just a follow-up. Is the deflationary pressure from the GDN, is that just about over now that it's been several years? It looks like you're finally hitting scale there. Thanks so much.
Yeah, we are hitting scale there. We're going to consistently look to have it in the mix that we can deliver value to our clients through the GDN, which maybe for those specific pieces are less revenue for us, what more can we do with value? I think what we've just demonstrated over the last couple of years is we've been able to do a lot with that.
Of course, the other point you've seen on the chart is if you look at 2011 and 2010, it was on back of 0% and -2% growth in Accenture. If you're looking at where we are in 2012 and 2013, it's on the back of 15% or 14%
Yeah
and 11%. It's not exactly the same analysis and the same math. Yep. John?
Yep. Keith Bachman from BMO Capital Markets. Two, if I could. Could you talk about the mix implications of margins? If BPO consistently grows faster than the weighted average and, say, consulting grows slower, what are the margin implications there?
Keith, as you know, we manage the business to operating margin.
That's what I was referring to.
While there are differences at the growth margin level sometimes, what we do is we often find Mike runs a very tight ship in terms of delivering profitable operating margin in BPO. We do look at this mix. We are expecting that the mix change that we saw will be about what we saw last year will carry through to this year and are very intent on managing that.
Well, the follow-up, if I could, is on Europe. I think appropriately so, you've cast Europe as a slower growth area. Some of your competitors would talk about Europe starting to at least open up more directionally in terms of the outsourcing model and things along those lines. How do you see that unfolding if you kept the economy neutral, so to speak? How does that potentially impact your growth? Thank you.
That one's yours.
That's for me. I'm the European expert on everything. Very good question. First, we are already doing a significant level of outsourcing in Europe. For us, that's not something new. I know for some of our competitors, they're looking at Europe as the next horizon. Not for us. We've been doing outsourcing, and I'm talking more about, I think, continental Europe. When you're mentioning Europe, you probably would put a little bit of the U.K. a part of that trend. We are doing outsourcing. Indeed, what you've seen last year, it was a great year for outsourcing in Europe because it's a response to the needs of our clients. The way of doing outsourcing requires some savoir-faire. I think we developed that savoir-faire in Europe because we have a better knowledge of the labor market environment.
We have, I would say, a network of our 50 delivery centers and a significant number of our delivery centers, I think something like 20, are in Europe. We are already equipped because it's not that easy as what we used to call what you're doing in some part of the world, what some of our competitors are doing with the lift and drop. That is not the mechanic to win in continental Europe. Yes, outsourcing is there. Yes, we are doing a lot. Yes, we expect to do more, and we are better equipped than many of our competitors to do the European outsourcing type of work.
Thanks, Keith.
Yes.
Thanks. Moshe Katri from Cowen.
Moshe.
A couple of questions here. First of all, talk a bit about your training and R&D expenses for fiscal year 2013. I think that level has been coming down pretty gradually every year. How should we think about the next few years for that specific budget?
I think you mentioned something on that, Sean, did you? $600 million. I don't think it's been coming down dramatically, but one thing that we are doing is this technology you saw this morning. We're continuing to push that all we can with training. Now, not all training can be done that way, but it's amazing how much more effective it can be. We're really pioneering even some new things in terms of how we're able to bring live training to people in a classroom, but they might be joined up with other classrooms around the world. I think what we're doing is really continuing to push technology so that we keep the effectiveness of training, but we are able to drive more efficiencies through that. That's part of what you see in the numbers. R&D is not going down. It's going up.
Yeah. On this, no different if you look at Accenture compared to any other large organization. We need to do more with less. That's all what Accenture way productivity, efficiency is all about. We are leveraging technology, we are leveraging lower cost countries, organization, and we're just more productive and more efficient. This is overall when it comes to training of Jill Smart, the team, Ellyn Shook, Larry Solomon there. Their job is to train more people with less every year. It's not easy, Jill, I know, but you're doing that very well.
Focusing on pricing, you're talking about trying to move up maybe the blended pricing levels given some of the value that you're providing your customers with. I'm assuming the environment is probably getting a bit more aggressive, especially in terms of pricing, more challenging. The tier 1 offer companies, some of them are struggling trying to go back into the market. How do you maintain those blended pricing levels that you have?
For the next, I don't know, six to 12 months, assuming that the environment continues to be challenging.
Well, as we mentioned on the Q4 earnings call, we actually have seen the environment to be pretty stable for our services. The push, where we can get the differentiation, is where you get that killer value proposition for the client, right, in terms of significantly more revenue gained or cost savings for them. That gives us some pricing power when we get those really differentiated propositions.
The name of the game is to get out of the commodity market. I think to come back to what Mike mentioned regarding BPO, you have two markets in BPO. The one we don't want to be, the one we want to be. The one we don't want to be, and the same with application outsourcing, that we do the same with money business, is the commoditized market. That's a disease, that's a problem. Now, not to be in the commodity market and to be more in the added value market, you need to work hard on all what has been presented this morning. Differentiation through industry, technology, business process, nuggets acquisition, things going to make you different, more relevant, IP proprietary.
Indeed, you can keep a kind of pricing power in the sense that what we've seen the pricing be stable, which I think is a very good achievement you would recognize in the current market environment, even just to have stabilized the price.
Thanks.
Number two?
Yes. Rod Bourgeois here from Bernstein. First question about competition. You have a lot of competitors that are aspiring to be more like Accenture. At least that's how I interpret the strategies that are being articulated. You might say easier said than done, but you are seeing companies with pretty deep pockets doing acquisitions, for instance, in Europe, and articulating strategies to become more transformational or more innovative. Are you worried about increasing competition? As it's very clear, the profit pool is at the higher end of the market over time, and a lot of players are making those investments. Let's just take Europe as an example, as Indian firms try to do acquisitions there. Presumably, you've looked at the same companies and haven't chosen to do those acquisitions, I guess, because you already have people there. How are you thinking about the competitive threat?
Is that something that weighs on your mind over the next couple of years as deep-pocketed competitors really try to make some investments?
Yeah. Thanks, Rod, for that question. First, we are watching that extremely carefully, as you might imagine. Sean and the team are monitoring every minute of every day what's happening in the competitive environment. Second, we have a lot of respect for our competitors. They want to win, we want to win. We're watching that extremely carefully. We are certainly not arrogant or complacent. We strongly believe that indeed, as we speak, we have a position of strength because of our positioning with the combination of working with the world's leading company, the company which are investing to transform, plus our scale, our geographic footprint, and our unique industry differentiation. If this morning we put such a focus and emphasis on industry differentiation, it is the most difficult thing to achieve.
It's not by buying a consulting company in Spain or in Switzerland, as you've been referring to, that you can create the 150,000 people in Accenture certified and aligned to an industry. We've been doing that not over two years, not with one or two acquisitions. We've been doing that over 40 years. It's much more difficult, in my opinion, to build deep industry skills than to create, to some extent, the technology delivery network. We're creating the GDN, and it was a massive achievement in less than 10 years. Industry specialization requires decades. Listen to what William Green mentioned this morning. We've been in South Africa for-
40
40 years. Brazil, decades.
Same, yeah.
China, decades. I don't think, especially in an environment where clients are eager to get highly specialized skills. They want the best bankers. They want the best people knowing health. To have the amounts of wisdom of a Steve Rohleder, it requires a few decades.
All right, great. On that note, a quick question for Pam. Just one of the things that seemingly has happened in your business recently is contract duration has gone up, and it would seem that one of the benefits of that is you have better revenue visibility for the outer periods. Is there any trade-offs attached to contract duration going up? Trade-offs in the area of capital requirements or the effect on margins in the early stages of these new deals. If one of your competitors were to say contract duration is going up, I would worry about capital intensity getting higher and cash flow being affected. Can you talk to how that's playing out in your business? Is that at all an effect on your ROIC and free cash flow outlook?
Generally not. This whole capital light thing flows through our contracts, and we generally, you can see the industry-leading DSOs. That's where you'd see it. We do think they'll come up a little bit to a more normal level, but we maintain a lot of strictness around that. In terms of early year economics, we always have a few places where we're investing, and that's in the mix.
Thanks.
Yep.
Thanks. It's Darrin Peller from Barclays.
Darrin.
Last year, you guys outperformed the top line in spite of slower consulting than I think you might have expected, mainly due to very strong outsourcing trends, especially within your business. I think the question really is, first of all, for Pam, how easy is it to guide? Or how different is it guiding under an environment with a greater outsourcing mix? Second follow-up to that is, if 5% to 8% top line is what you see in an environment with very strong outsourcing, but a little bit slower on the consulting side, should we expect longer term something above that, since outsourcing generally is so sticky? You got this long sticky business with growth, 5% to 8% in consulting, you have to really even come back in a strong way.
Yeah. I think outsourcing is a little bit more predictable in the sense that these are generally longer-term contracts, and we know what we're going to be doing over a period of years. It's that shorter-term consulting, actually that quickest turn consulting, which is the hardest to predict in our business. That's what we're seeing a little less of right now. I think how we're seeing this come back, as you saw consulting taper down through the year, and then as we see these bookings really starting to take hold, our expectation is that it will gradually move up through fiscal 2013.
The environment is uncertain, probably less volatile, but reasonably uncertain. It's difficult to predict what's going to happen in 2013. We can probably understand what's going to happen at the back end of 2012, but 2013. Where I feel good about where we are is indeed, we see a little bit more durability through the outsourcing, through the backlog. I'm pleased with the $32 billion bookings we had in fiscal year 2012. I'm pleased indeed with this outsourcing backbone we have in it and the BPO performance. I'm pleased to some extent as well, within the consulting, when we had good bookings, we see deals or projects of longer duration. Less the smaller things, but with longer duration.
Longer duration is making all the thing more predictable and giving you a little bit more visibility, especially at times where it's difficult, as you mentioned, to really forecast what you don't know. I think we are in good place to start with our mix of work, with our bookings, and with our backlog. Number one.
Aaron.
Hi, thanks very much. George Price from BB&T.
George.
Pam, I wanted to ask you just real quick about the tax rate. I know it's a more minor part of your outlook, but as you also indicated, it's a little bit lower than you've seen before.
It's made your money, though, yeah.
Absolutely. It is a help. If I think about what you talked about in terms of the U.S. versus EMEA, the growth outlook, presumably Europe's going to be growing slower through the near term. All right, U.S. faster, that would suggest, all else being equal, a higher relative tax rate, right? Is the offset faster growth in emerging markets? Is the offset the ramp-up you've seen in volume and profit through GDN? You mentioned some of the resolutions that you kind of expect, I just wondered if maybe you could just give a little bit more color as to that planning and maybe if there's a bias within that range. Thanks.
You just gave the color. That's the stuff, right? There's some final determinations factored in there as well. Yeah, it's the geographic mix. It's all of that. You can imagine. The tax guy's actually sitting right behind you. You can quiz him after if you want, but he's not allowed to say anything. No. Anyway, you got it. As you can imagine, it's a pretty complex process for us. All the countries we're in and all the things we do. We do see it going down about a point, the range this year.
Here, and then we will move left.
Hi. Thanks. It's Tien-Tsin Huang from J.P. Morgan again. Just, I guess, capital allocation question, Pam.
Yeah.
It's been very thoughtful and obviously, I think it's been a help to the multiple as well to see the income and the consistent share repurchase. How do you benchmark the share repurchase versus the dividend? You've been very consistent there, but how price sensitive are you on the stock price? Is there a 10b5 in place? How do you weigh the international versus the domestic cash? Lastly, just on dividend, do you see an upward limit on the payout ratio?
We don't have sort of this international-domestic thing, just because we're based in Ireland. Just on the repurchases and the dividend, I think our philosophy is that we can consistently continue to do what we've done, and I sort of tried to lay out that ratio. We're also, as I mentioned, very confident about our ability to significantly see repurchases versus issuances, which we're very judicious about as we go forward to our top leaders. I think with the dividend, we've been growing it slowly, steadily, and there's still some room there.
All those discussions are with our board of directors, who are supporting us and helping us in setting our capital allocation strategy.
Yes. Very big job that we do with the finance committee.
Yes.
Thank you. It's David Grossman from Stifel Nicolaus. You guys have done a remarkable job of growing a very large professional services business over the last several years. Can you maybe share with us how you think about the challenge of sustaining that growth? Particularly in the context of some of the earlier comments that you made about this fine line of competing and cooperating or partnering with the software vendors.
Yep. Good question. From a growth standpoint- Yes, we are a reasonably big organization. Yes, we can grab more market share. What you see, how the world is developing, we can grow in China, we can grow in our 10 priority emerging markets. We're not short of opportunity to grow. I'm not concerned with this. What I'm more concerned with is for us to make the right bets, to focus on the right opportunity. It's to select health, it's to invest in the right BPO and not in the wrong BPO. We have multiple opportunities to grow. We decided on 10 priority emerging markets, not some others. On those 10 priority markets, we're putting more emphasis on China, and you've seen the result. On South Africa, on India, on Brazil, and on ASEAN. The point is, there is a world of opportunities.
Where do we want to compete? We believe we have a differentiated value proposition. We can find the clients, the G2000 for whom we are good at in terms of delivering our service. I'm not that concerned, as long as we remain extraordinarily focused so we can scale and leverage our investments. From a competition standpoint, yes, it's a world of competition, as you're saying, but we have reasonably few, let's say six, seven key strategic technology partnership. We've been working with Microsoft, Oracle, SAP, and now Salesforce for years. We developed unique and trusted relationship with them. They are developing their software. We're part of their success by successful implementation. We're building on top of their solution, unique industry wrappers. This is what we are doing in health, as Steve mentioned earlier on.
I think we find the right way of cooperating with our partners, which I believe is truly win-win. I see more moving forward cooperation, and less competition with those partners we have, because we have defined very clearly the space where we want to cooperate, to lead, and to win in the marketplace. Yep. On the left, and then we'll move back on the right.
Jason?
Thanks, guys. Jason Kupferberg from Jefferies. Financial Services question for you. Q4, fantastic growth. Obviously 16% constant currency, I think probably surprised everybody to the upside, just given all the macro uncertainty in that vertical. I know there were some one-time helpers in there, but still, very strong growth. When you think about fiscal 2013, I'm assuming that mid-teens is probably too much to expect, but would you expect Financial Services to grow faster than the corporate average in fiscal 2013? If so, what are the drivers there?
I don't think we're going to give any forecast by vertical at this stage.
No.
But-
I think the only thing we can say is we see great opportunities.
We feel good. We're not surprised. You may be surprised because you don't know Richard Lumb who's leading Financial Services. He's here, and he's just a great leader, and he's leading that vertical. I know Richard, and he's been leading that vertical in 2007, 2008, 2009, when the market had been tough. Interestingly, we got out of the crisis probably stronger than any of our competitors under the leadership of Richard. We see opportunities, because if there is an industry, probably together with Comm, my friend Bob here, where you see massive transformation because of the Basel III. You know that market segment. There is an unlimited need, to some extent, for transformation. With the blend outsourcing, Accenture Credit Services, mortgage BPO in the U.S. We capture that opportunity. Outsourcing, transformation, risk and regulatory management, Basel III.
All of this is creating an environment of change and transformation in that industry, I think Richard and the team doing an excellent job in converting those opportunities. I'm from FS, I'm passionate about that vertical. I must recognize that Richard is doing better than me. I'm nice today, that's that.
Great. I think we have one over here, number 2.
Hi. It's Ashwin Shirvaikar from Citi. I guess my first question is, as Accenture's global depth increases, as you get more % of revenues from emerging markets, how does that affect your view on longer term revenue growth and margins? Does that bring your revenue growth up because these markets get more mature users of IT? What about the margin profile?
I think what we've seen is in those markets, our margins are reasonably consistent with the rest of Accenture.
On average. Yeah.
On average, if you look at those 10 markets. You might make the hypothesis, okay, you're expanding in new territories, you have to invest at the expense of the margin. To some extent, that would make sense. This is not what we see. Probably because we continue to work with leading company G2000. You heard Roger, William, Laylim, Gong. Our focus is around the G2000, and those clients have some consistent pattern in term of buying. We know how to serve them. It's not that dilutive, if you will, from a margin standpoint. What we see, on average. Is their margin is consistent with the margin of Accenture, and we do not see any reason for this to change.
What about the growth part of the question?
We do expect them to grow faster than the rest of Accenture. Last year they grew 16%.
How sustainable is it over time? I mean, does that then bring up your overall corporate growth rate as that becomes a bigger portion of your revenues?
Well, it's a portfolio, right? We're always going to be looking at what can the portfolio do. I think, as Pierre has said, we're really focused on these markets, right, in terms of investing to drive higher than average growth, and they indeed are delivering.
I think 18 months ago, you remember, Pam, we mentioned that those markets in aggregate represent something like $3 billion. I think we mentioned the number at that time, 18 months ago. When you look at this, you can see that we have some room left for growth, given the starting point. We're pleased with where we are, but we are comfortable we can grow because there is still a high potential to get market share in those 10 priority emerging markets, given the relative size at the beginning.
Okay.
Time for one more.
Yep.
Thank you. Sara Gubins from BofA Merrill Lynch. On your last earnings call, you mentioned that 60% of projects were sole-sourced, that was up from 50% previously. Can you talk about what's driving that? What it means, if anything, for pricing, and if it's happening in particular areas of your business. Thank you.
It's happening across all of our business because it's really a thrust of how we're going to market. The more that we can proactively bring great propositions to our clients that combine our various capabilities, technology, BPO, consulting, we feel the better that is. I was pleased to see the wins in terms of how we've been sort of steadily increasing that percentage over the last couple of years to indeed be sole source. It's very much part of our strategy to drive that.
Thanks in closing to find that nugget, because I think that number is probably really telling about all what we discussed this morning. The 60% is the result of the execution of the strategy and is the result of the recognition of Accenture differentiation from our clients. They could put us in competition. Nothing forcing them to buy sole source. If they are doing that, it's because they believe that we are more differentiated than the competition, that we're bringing more value from the competition in terms of business outcome. We are more predictable, and we can deliver with more predictability and with less risk. It's all of this, and we have on top of this, I think, Sean, you mentioned that on your section, long and enduring relationship over 10 years for how many?
91.
90?
One.
91% of our diamonds with more than 10 years relationship. It's all of this. That's why to come back to the question of, Rod around us and the competition. To build that, it has required years of effort, focus around industry, technology, geographic expansion, scale, industry relation, GDN. On top of this, to maintain absolutely unique, trusted relationship with those giants. That's really at the heart of what we're calling now Ambition 2020, is to continue to serve that very specific segment of the G2000 clients. Those giants, they want to work with partners, suppliers, providers they trust to embark in some large transformation. The nuggets you find on the 60, I think is probably the best illustration of this.
Thank you, Sara.
Thanks a lot. Time to wrap up, so I'm not going to make any profound ending. I think we covered a lot. I hope that you find this morning valuable, and you understand what's making Accenture differentiated in the marketplace, competitive in the marketplace. I hope you're comfortable with the strategy we are executing in the marketplace, and why we believe that growth strategy is resonating with our clients and going to make us successful not only today, but going to make us successful moving forward. Again, you heard from all of us that we feel good, we feel confident, but we don't feel arrogant or complacent. Never. That kind of thing will never happen to Accenture. It's a company where we're working hard. We understand our strengths, and every day we want to make that company better. That's what that is.
If you will, the five key words, maybe to summarize the whole thing, is we're going to relentlessly focus on creating a diversified portfolio of businesses because we believe that the right response to the volatility and the uncertainty in the marketplace. We will continue to invest in differentiation, differentiation, whatever is around technology, innovation or whatever it's around industry. Innovate, create new business model as we are doing with BPO. We're going to do that relentlessly. Scale. Scale is the name of the game for us. Avoid fragmentation. Pick your spot, your country, your industry. Scale rapidly to realize economy of scale, economy of scope. With all of these five, you are competitive in the marketplace, you win. Those kind of five things are extraordinarily important, and we are executing.
You've seen probably our lexicon and some smile on our faces around rigor and discipline at speed, at scale, shake and shape, and passion and energy. As I closing now, I would like first to thank the management team of Accenture. Not only because they are great professionals. Of course, they are great professionals. I'm sure with our competitors, you have great professionals. I think what's making this management team unique and important for you is we are extremely aligned. We all share the same view on what it is we want to execute in term of strategy. Maximum alignment. Second, maximum cohesiveness. We're an international team, as you've seen. Very international if you add all our geographic leaders. We are extraordinarily cohesive, working with each other. Probably you've seen, I hope, a sense of camaraderie. That's important.
You can have the best professional on the planet. If they're not working as a team with alignment, cohesiveness, and camaraderie, you can't achieve high goals. I think we have this. I would like as well to thank our board, we have some members of the board here with us today. Thanks a lot for being with us. Permanently challenging us, challenging our hypothesis, supporting us in the way we execute our strategy. Of course, thanking the 257,000 people because they are making the difference every day. We're a professional services organization. It's definitely not about me, maybe not about us, but it's all about them, what they do every day at clients in 120 countries delivering the magic of Accenture. Again, thanks a lot for participating to the IAD. I hope you find the communication interesting, and you feel good about Accenture.
In closing, I feel good. Thanks a lot