Earnings Call: Q4 2010

Sep 30, 2010

Ladies and gentlemen, thank you for standing by and welcome to the Accenture's 4th Quarter Fiscal 20 10 Earnings Conference Call. At this time, all lines are in a listen only mode. We will take questions at the end of the conference. Of Investor Relations, Mr. Richard Clark. Please go ahead. Thank you, Tammy, and thanks everyone for joining us today on our 4th quarter and full year fiscal 2010 earnings announcement. As the operator just mentioned, I'm Richard Clark, Managing Director of Investor Relations. With me this afternoon are Bill Green, our Chairman and 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. Bill 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 both the Q4 and the full year. Bill will then provide insights on what we're seeing in the market and how we are positioning our business for future growth. Pam will then provide our business outlook for the Q1 and full fiscal year 2011 and then we will take your questions. As a reminder, when we discuss revenues during today's call, we're talking about revenues before reimbursements or net revenues. Some of the matters we'll discuss on this call are forward looking and 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. Such risks and uncertainties include, but are not limited to, general economic conditions and those factors set forth in news release and discussed under the Risk Factors section of our annual report on Form 10 ks 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 provide reconciliations of those measures 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 Bill. Thank you, Richard, and thanks everyone for joining us today. I am both pleased with and proud of our performance in fiscal 2010 as we were able to deliver on the commitments we made earlier in the year. And I am particularly delighted with our strong performance in the 4th quarter, which further demonstrates not only growth, but momentum. Through the disciplined management of our business, we delivered on revenue, achieved strong profitability and generated exceptionally strong cash flow. Here are a few of the highlights from the quarter and the full year. Quarterly revenues were $5,400,000,000 at the high end of our expected range even after adjusting for the actual FX impact in the quarter and annual revenues were $21,600,000,000 also within our expected range. We delivered strong new bookings of $6,500,000,000 for the quarter, including more than $3,500,000,000 in consulting bookings and full year bookings of We generated free cash flow of $1,200,000,000 for the quarter and the full year. We generated free cash flow of $1,200,000,000 for the quarter $2,900,000,000 for the year, exceeding the top end of our annual range by more than $350,000,000 We continue to have an exceptionally strong balance sheet with a cash balance of nearly $5,000,000,000 and no debt. We continue to return cash to shareholders with more than $2,000,000,000 of share repurchases during the year and we just announced a semi annual cash dividend of 0.4 $5 which represents a 20% increase over the semiannual dividend we paid earlier this year. To meet increasing client demand for our services, we continued our focused and aggressive hiring of the absolute best people in the market. This enabled us to reach an important milestone this quarter as our global headcount passed the 200,000 mark. So we delivered very strong results in the quarter and have a great forward momentum going into fiscal 2011. More importantly, looking at our business in the market, we are better positioned for the future than at any time in our history. With that, let me turn the call over to Pam, who will provide some more detail on the numbers. Thank you, Bill. Thank you all for joining us today. I am pleased to tell you more about Accenture's fiscal year 20 Despite the uncertainty we saw 1 year ago, we Despite the uncertainty we saw 1 year ago, we met or beat all of the elements included in the original annual financial outlook we provided a year ago for our fiscal year 2010. As we look forward into our fiscal 2011, we are solidly positioned and well in line with the initial view we provided at our Investor and Analyst Conference on April 8, almost 6 months ago. Unless I state otherwise, all figures are GAAP except the items that are not part of the financial statements or that are calculations. New bookings for the Q4 were $6,500,000,000 and reflect a negative 1% foreign exchange impact compared with new bookings in the Q4 last year. Consulting bookings were $3,500,000,000 dollars and outsourcing bookings were 3,000,000,000 toward the upper end of our projected range of $23,000,000,000 to $26,000,000,000 They reflect a positive 3% foreign exchange impact compared with new bookings 9. Consulting bookings for fiscal 20 10 were $13,600,000,000 and outsourcing bookings were $11,400,000,000 We were very pleased with our 4th quarter's consulting bookings, the highest level in 7 quarters. In management consulting, our clients are hiring us to help them drive both operational excellence and growth in their businesses. Demand continues to build around the world and across our operating groups and service lines. We see more projects in areas such as M and A integration, supply chain and process optimization, risk management and global operating model design. And demand is increasing in the growth areas of analytics, sales transformation and new market entry. In technology consulting, we continue to see very robust demand with record bookings infrastructures, whether it be data center consolidation, virtualization, application modernization and renewal, security or IT governance. The emerging themes are innovation and flexibility in order to drive down IT costs yet flexibly support growth through increased use of the cloud and virtualization. In systems integration, bookings grew strongly in comparison to the Q4 of fiscal 2009. SAP and Oracle demand is notable, along with custom work on dotnet and open source platforms. Projects with transformational objectives are returning, but the work is more often being contracted by release rather than by the full program, with a tighter focus on business cases. As we have been expecting, the volume of work is growing very significantly as we continue to proactively and successfully manage and meet demand for the mix of work moving to lower cost locations in our global delivery network. Turning to outsourcing, bookings were solid. The duration of outsourcing contracts continues to be shorter, resulting in smaller deals overall, while the revenue per contract year continues to hold steady. In technology outsourcing, bookings reflect demand for next generation infrastructure services as well as for the consolidation and renewal of application platforms. Both cost optimization and vendor consolidation continue to be demand drivers. Across the board in technology outsourcing, we are also seeing a sizable increase in the volume of opportunities, which positions us well for the future. Our BPO bookings ticked up and reflect demand for both horizontal and vertical offerings, particularly in North America and Europe. Client focus on cost takeout continues to drive demand, particularly for finance and accounting as well as for procurement and industry processes. I am pleased with the very solid bookings results and our ability to achieve our book to bill targets for both the quarter and fiscal year. This positions us well for the fiscal 2011 growth we are projecting. Now turning to revenues. Net revenues for the Q4 were 5.42 $1,000,000,000 an increase of 5% in U. S. Dollars and 8% in local currency from the same period last year. Q4 net revenues reflect a foreign exchange impact of negative 3%. Our previously guided range of $5,150,000,000 to $5,350,000,000 assumed an FX impact of negative 5%. If we adjust for the actual FX impact, guided range for the quarter would have been $5,250,000,000 to $5,450,000,000 So our revenues of 5 $420,000,000 were right at the top of this range. Consulting revenues for the quarter were $3,100,000,000 an increase of 6% in U. S. Dollars and 9% in local currency. Outsourcing revenues were $2,300,000,000 an increase of 4% in U. S. Dollars and 7% in local currency. Net revenues for the full fiscal year were $21,600,000,000 flat in U. S. Dollars and a decrease of 2% in local currency, above the expected bottom end of our guided range of negative 3% to positive 1%. Consulting revenues were $12,400,000,000 a decrease of 1% in U. S. Dollars and 4% in local currency. Outsourcing revenues were $9,200,000,000 an increase of 2% in U. S. Dollars and flat in local currency. I am extremely pleased with how our leaders have driven our business over our fiscal year 2010. As we laid out at our Investor and Analyst Conference in April, we've been expecting a continued shift of systems integration work and to a lesser extent our application outsourcing work into the global delivery network as clients seek more value for money. For fiscal 'ten, we grew headcount in our global delivery network by 25% and at the same time, we grew our consulting workforce by 7% to meet growing growth momentum build nicely in 4 of our 5 operating groups. In products, growth continued to trend up and was 16% in local currency in Q4 with strong consulting growth of 18% and outsourcing growth of 14% in local currency. We saw double digit growth across all three geographic regions, led by consumer goods and services, automotive, industrial and transportation services and retail. Demand continues to be strong in both consulting and outsourcing for offerings designed to help our clients make their operations more efficient and cost competitive. We also see building demand for analytics in our consumer goods and retail practices. In financial services, revenues grew 14% in local currency in Q4, the Q1 of double digit growth in 3 years. Momentum continued to build in consulting with notable 21% growth and outsourcing turned to positive growth for the first time in 6 quarters. The terminations we saw in fiscal 2009 have anniversary. We saw significant growth across all three geographic regions, particularly in banking and capital markets. As our clients continue to grapple with the challenging environment, we are responding with services related to post merger integration, core banking replatforming, risk and regulatory compliance and business model transformation with an emerging demand for analytics. In resources, revenue growth continued to trend up to 9% in local currency in Q4 with strong consulting growth in energy and natural resources driven by demand for global operating model design, ERP, operational excellence and smart grid related projects. Outsourcing growth in resources reflected client programs for cost takeout in IT and Financial Business Processes. Communications and High-tech has turned the corner to growth, the first 7 quarters. Revenues increased 7% in local currency in Q4, led by strong growth in consulting. Consulting activity in CNHT was driven by strategic sourcing, globalization, cost takeout, customer acquisition and retention as well as by clients deploying new technologies in support of increasing wireless product demand. Outsourcing revenues in CNHT were flat as we are just about the anniversary of the fiscal 2009 cancellations. In health and public service, revenues declined 8% in local currency in the 4th quarter, driven by a decline in consulting revenues in public service as uncertainty and challenges in the public center remain, particularly in the U. S, the U. K. And other parts of Europe. Outsourcing revenue grew in Q4 and was primarily driven by demand within health and U. S. Federal. We expect the revenues in public service will bottom out during fiscal 2011 as we reposition that business. I would add, we saw strong bookings in health and public service, the largest in 8 quarters, primarily driven by health. In summary, these revenue results put us on a growth trajectory, which is in line with our fiscal 2011 expectations. Moving down the income statement. For the 4th quarter, gross margin was 34% compared with 32.3% in the same period last year, a 170 basis point expansion. Gross margin for the full year was 33.6% compared with 31.7% in fiscal 2009, a 190 basis point expansion. Sales and marketing costs for the Q4 were $698,000,000 or 12.9 percent of net revenues compared with $552,000,000 or 10.7 percent of net revenues in the same period last year, an increase of 220 basis points. And sales and marketing costs for the full year were $2,700,000,000 or 12.3 percent of net revenues compared with $2,200,000,000 or 10 percent of net revenues in fiscal 2009, an increase of 230 basis points. This increase in both quarterly and full year gross margin results, offset by a corresponding increase in sales and marketing expense, was primarily due to the implementation of our sales effectiveness model put in place at the start of fiscal 2010. This had no overall impact when reported operating and 40 basis points in the Q4 and full year respectively, reflected our efforts to invest in building our pipeline this fiscal year. General and administrative costs for the Q4 were $433,000,000 or 8 point 0 percent of net revenues, flat with $433,000,000 or 8.4 percent of net revenues in the same period last year, a decrease of 40 basis points. G and A costs for the full year were $1,670,000,000 or 7.7 percent of net revenues compared with $1,790,000,000 or 8.3 percent of net revenues in fiscal 2009, a decrease of 60 basis points. Lower G and A costs for both the quarter and the year were primarily driven by our efforts to consolidate office space and lower technology costs. In addition, the full fiscal year comparison reflects a 30 basis point impact from the fiscal year 2009 bad debt provision. Turning now to operating income. As a reminder, we reported a 2 $53,000,000 restructuring charge in the Q4 last year. We are therefore providing a comparison of fiscal 'ten results to both the fiscal 2,009 GAAP results and to the adjusted fiscal 2,009 results, adjusted to remove the restructuring charge for operating income and operating margin. Operating income for the 4th quarter was $714,000,000 reflecting a 13.2 percent operating margin. This compares with $420,000,000 or 8.2 percent operating margin for the same period last year. Without the restructuring charge, operating income for the Q4 last year would have been $672,000,000 or 13.1 percent of net revenues. Full year operating income of $2,900,000,000 reflected a 13.5 percent operating margin compared with $2,600,000,000 or a 12.3 percent operating margin for fiscal the restructuring charge, full year operating income for fiscal 2009 would have been $2,900,000,000 or 13.4 percent of net revenues. Although we originally planned to have no operating margin expansion in fiscal 20 10, these results reflect 10 basis points of expansion when compared to last year's adjusted results for both the Q4 and the full year. 4 of our operating groups delivered strong results in operating income and margin in the 4th quarter. The operating income in Health and Public Service was negatively impacted by higher selling costs and lower contract profitability in parts of the public service portfolio. Our effective tax rate for the Q4 was 28.8%. The year to date effective tax rate was 29.3%, in line with our annual guided range of 29% to 30%. Net income for the Q4 was CAD510,000,000 compared with $306,000,000 in the same period last year, which was reduced by $189,000,000 related to the after tax impact of the restructuring charge. For the full year, net income was $2,060,000,000 compared with $1,940,000,000 in the previous fiscal year. Diluted earnings per share for the quarter were $0.66 compared with 4th quarter fiscal 'nine EPS of $0.39 This increase in EPS breaks down as follows: a $0.24 increase reflecting the impact of last year's restructuring charge a $0.06 increase from higher revenue and operating income in local currency and a $0.01 increase from a lower share count, offset by a $0.02 decrease from unfavorable foreign exchange rates and a $0.02 decrease from a higher effective income tax rate. For the full fiscal year, diluted earnings per share were 2 point 'nine EPS of $2.44 and we're above where we expected to be within our guided range of $2.61 to 2.69 dollars The year over year increase in EPS breaks down as follows. Dollars increase reflecting the impact of the restructuring charge recorded in the Q4 last year, a 0 point 0 $7 increase from a lower share count and a $0.06 increase from favorable foreign exchange rates, offset by a $0.04 decrease from lower revenue and operating income in local currency, a $0.01 decrease from lower reorganization benefits, a 0 point 0 $3 decrease from lower non operating items and $7 decrease from a higher effective income tax rate. Now let's turn to some key parts of our cash flow and balance sheet. Free cash flow for the quarter was a very strong $1,150,000,000 an increase of 170 $9,000,000 over the Q4 of fiscal 2009 resulting from cash from operating activities of $1,250,000,000 net of property and equipment additions of 102,000,000 dollars For the full fiscal year, free cash flow was $2,850,000,000 This was $350,000,000 above the top end of our previously guided range, resulting from cash from operating activities of $3,090,000,000 net of property and equipment additions of $238,000,000 This strong free cash flow continued to be primarily driven by lower than expected days services outstanding or DSOs of 30 days, which were slightly higher than the 28 days in Q3 and at the end of August last year. Our cash balance at August 31 was CAD4.8 billion compared with CAD4.5 $1,000,000,000 at August 31 last year. Turning to some key operational metrics, we ended the year with global headcount of approximately 204,000 people. Our global delivery network grew from 93,000 people at the beginning of the fiscal year and ended with over 116,000 people. In Q4, our utilization was 86%, down 2 Our utilization was 86%, down two 100 basis points from Q3 and more in line with our targeted level. Attrition, which excludes involuntary terminations, was 17%, flat with Q3, but up from 10% in Q4 last year. Let me turn now to how we are returning cash to shareholders. In the Q4, we repurchased or redeemed about 19,000,000 shares for $738,000,000 at an average price of $39.03 per share, including about 17,000,000 shares repurchased in the open market. This was the highest dollar volume of quarterly share repurchases in over 3 years. For the full year, we repurchased or redeemed 52,000,000 shares for about $2,100,000,000 at an average price of $40.01 per share, including about 25,000,000 shares repurchased in the open market. At August 31, we had $2,900,000,000 of share repurchase authority remaining. Earlier today, we announced that our Board of Directors has declared a semiannual cash dividend of $0.45 per share. This dividend will be paid on November 15, 2010. This represents a dividend we declared in March. As a reminder of our dividend policy, the board has established this year's annual dividend target now that fiscal year 'ten results are known. The Board has declared the first half today. This year's second semiannual dividend will be declared at our Q2 earnings call. In summary, we call. In summary, we had a strong quarter, ending the year where we expected with clear momentum as we enter into fiscal 2011. I am very proud of Accenture people and their give you a sense of what we see on the horizon and then I will finish up with our business outlook for fiscal 2011. Thank you, Pam. I just wanted to take a moment to update you on what we see out there and what we're doing to drive our business forward. First, I feel very positive about our business. The competence and depth of our leadership team, our global coverage, our unique industry skills and know how and great clients are second to none. FY 'ten was a challenging year with strong and shift headwinds. We navigated through it exceptionally well and we executed with confidence and with discipline. Delivering these results with the challenges we faced in the market, you have to ask yourself, what can we do when the wind is at our backs? And if you combine that with the fact that we are better positioned than ever in our history, I think we'll be taking Accenture to the next level. And it won't be because it just happens, it will be because we make it happen. So although there's still economic uncertainty in some markets around the world, our strong results in Q4 on top of Q3 show that we're on the move as we predicted we would be earlier in the year. We have great opportunity ahead of us. As you'll recall, we're driving growth on 3 dimensions. 1st, our core business. This includes the vast majority of our consulting, technology and outsourcing services. Our leading management consulting capability truly sets us apart. We continue to broaden our services and are tackling our clients' most important and critical challenges. In technology, we are uniquely well positioned and we are actively bringing the rapidly building technology waves to life at clients around the world. And in BPO, continue to invest in our core business as well as new offerings that combine our management consulting and BPO capabilities together for powerful outcomes for our clients. The second dimension is our new initiatives and businesses, which include analytics, digital marketing, mobility, smart grid and many other products and services we're building within and on top of our core. We have great traction in these areas. And finally, our 3rd dimension of growth, geographic expansion, where we have a 2 pronged focus on emerging fast growing markets as well as on capturing increased growth and profit in our most developed and mature markets. Our growth agenda is exciting, but just as important is the position that we're starting from. In a challenging economic environment, we set a plan and delivered on it. We have consistent growing momentum across the board. Our clients include 93 of the Fortune Global 100 Companies and we're serving them in more than 120 countries. We now have 100 Diamond clients across the globe. We passed the 200,000 employee mark and are getting the absolute best people. We're harvesting the substantial investments we've made in training, offerings and assets over the past few years. So all of that should give you a good sense how well positioned for the future we believe we are. Now Pam will provide our business outlook for fiscal 2011. Thank you, Bill. Before I go into our fiscal year 2011 business outlook, I'd like to share with you some thoughts on how we are looking forward to this fiscal year. The economic picture is still quite uncertain with a mix of positive and negative news that continues to change around the world. This is not lost on us. We know we need to stay very close to what generates value for money for our clients and to manage our business tightly. As we've done in previous fiscal years, we plan to provide annual guidance in the areas we have in the past and we will update you on these measures quarterly. We will continue to provide quarterly guidance for revenue so that you have a basis for understanding our level of business by quarter as we progress through the year. Turning first to our assumptions for the impact of foreign exchange. At this point, we expect the impact of foreign exchange based on how rates have fluctuated over the last couple of weeks to be a negative 1% on our results in U. S. Dollars for fiscal 2011 compared to fiscal 2010. As we've done in the past, we will update the foreign exchange assumption each quarter based on how the rates are trending compared to fiscal 2010. For the full fiscal year 2011, we are targeting new bookings to be in the range of $25,000,000,000 to $28,000,000,000 We are expecting outsourcing bookings, which are lumpy as you know, to be relatively lighter in the Q1 and for bookings overall to grow throughout the year. Turning to revenue. As we stated last quarter and at our Investor and Analyst Conference on April 8, we continue to expect net revenue for the full fiscal year 2011 to grow in a range of 7% to 10% in local currency over fiscal 2010. In fiscal year 2011, we expect operating margin to be in a range of 13.6% to 13.7%, a 10 to 20 basis point expansion. We will continue to balance profitability with making investments to position our business for the future. You should expect some fluctuations quarter to quarter as you've seen in the past. We expect our annual effective tax rate to be in the range of 28% to 29%. For earnings per share, we expect full year diluted EPS for fiscal 2011 to be in the range of $3 to $3.08 $8 This represents 13% to 16% growth, which is a tick up from the 12% growth target that we provided at our Investor and Analyst Conference in April. Now let's turn to cash flow. For the full fiscal year, we expect operating cash flow to be in the range of $2,700,000,000 to $2,900,000,000 Property and equipment additions to be $340,000,000 and free cash flow to be in the range of $2,400,000,000 to $2,600,000,000 To update you on our thinking for uses of cash, first, we will continue pursuing tactical acquisitions as a part of the growth strategy Bill outlined. In addition, we remain committed to return cash to shareholders. We now expect to reduce the weighted average diluted shares outstanding by at least 3% in fiscal 2011 and to return to shareholders at least $2,600,000,000 through share repurchases and dividends. This may change as we continue to evaluate our uses of cash during the year. Finally, turning to the Q1, we expect revenues to be in the range of $1,000,000,000 to $5,800,000,000 This assumes a foreign exchange impact of negative 3% compared to the Q1 in fiscal 20 10. As we begin fiscal year 2011, we are focused on driving profitable revenue growth, building share in the addressable market for our services around the world, developing talent across the globe, maintaining a strong balance sheet and as always generating significant free cash flow. With that, let's open it up so that Bill and I can take your questions. Richard? Thanks, Pam. I would ask that you each keep your questions limited to one question and one follow-up to allow as many participants as possible to ask questions. Operator, would you provide instructions for those on the call? Thank you. We'll go to the line of Tien Tsin Huang from JPMorgan. Please go ahead. I want to ask about the consulting bookings first. That was up a lot sequentially in the Q4 and Pam you gave a lot of good reasons. But curious, typically we see a decline in the Q4 and it was actually up quite a bit sequentially here in the Q4. Any pull forward or anything unusual that we need to consider here in terms of the run rate of bookings that we saw in the Q4? There's nothing that unusual about it. I think it's a strong bookings number as you said in consulting, tried to give the color, clearly momentum there. I think they were like well, certainly the best we have in recent memory, at least 7 quarters, I think. Yes. Okay, good. Nothing unusual. So just on the margin side as my follow-up, the margin expansion for fiscal 'eleven, the 'ten to 'twenty, can you the dynamics of the gross margin versus SG and A line and how that might map out for the year? Well, as you know, we manage the business to operating margin and we'll continue to do so. And so it's really all the levers, Tien Tsin. I mean, it's what we do with pricing, what we do with cost to serve. We're going to be continuing to drive G and A down. We have initiatives to do that. And then we're also looking to make our selling costs more efficient this year. Okay. Good stuff. Thanks a lot. Great. Thank you, Tien Tsin. We'll go to the line of Rod Bourgeois from Bernstein. Please go ahead. Yes. Rod Bourgeois here with Bernstein. Hey guys, a big milestone to be over 200,000 people now at Accenture. Congratulations on that. I wanted to look at the demand environment. It's nice to see the guidance that you give us an idea of what assumptions are tied to the bottom and the bottom and the bottom and the bottom and the bottom give us an idea of what assumptions are tied to the bottom and the upper end of that range? Can you tell us what assumptions would be required to get to the low end versus the high end? Rod, it's again, I think it's about 1% at the bottom. Rod. It's again, I think it's about 1% at the bottom in local currency. And I think the first thing is that we, of course, are coming into the year strong with Q4 bookings being strong. We also have 14% more actually contracted already in local currency than we had as we started this year. And there's also all these factors around duration that we mentioned in terms of contract durations getting shorter in outsourcing and also just the system integration, the way that's booking more in chunks, release chunks versus some full program. So I think there's a bunch of those dynamics that are in there. And we did test this with the book to bills in terms of meeting the low end to the high end of the revenue range that we gave you. But to get to the upper end of the bookings range, would duration and consulting and outsourcing need to rise over the next year in order to get to that level? We didn't really take that into account. I think it's more just, what we see in the pipeline and then just kind of risk adjusting that in terms of the range. As you know, we usually do give a $3,000,000,000 range in bookings when we start the year. Okay, great. And then Bill, I wonder if you could comment on the demand environment in Europe versus the U. S. It seems that some decision making in Europe may be a little slower, but it seems also that the big companies in Europe seem to be continuing to invest after being on a hiatus last year. But can you give us any specificity on how confident you are in demand in Europe holding up compared to in the U. S, which has been very strong? Yes. We've been pleasantly surprised by the demand in Europe because every day you read the paper, you see something and you start to worry. But frankly, the big companies operate on a pan European and are on a global stage. Elements of their business are doing exceptionally well. And people are if you look at people might be a little slow on the hiring, but they're not slow on the capital expenditures either. I mean, people are investing in their business. Frankly, they're going to pick 2 or 3 things that are going to be fundamentally important, and they're going to do those, and that's what we're trying to be aligned with. So we're a lot we feel a lot better about Europe than what you read in the newspaper. All right. And on that note, Bill, Pam mentioned something about 14% more is booked heading into the upcoming fiscal year. Is that part of what gives you confidence in Europe that you've already got a strong backlog that ensures some growth in Europe even if things in the macro environment sort of deteriorate over the next year? Well, I think it's everything, Rod. It's the bookings, but it's also the pipeline and it's the level of activity. It's sort of the whole food chain of from idea to getting a piece of business. And the activity is strong. Of course, we've got great penetration and a great brand there. And so, we just continue to see momentum in that market even though each country has its own set of challenges. All right. Thanks, guys. Thank you, Rod. Adam Christ from Morgan Stanley. Thanks. Good afternoon, guys. So it seems that demand is really kicking in for you guys and in areas of higher margin businesses. Wondering if this momentum is allowing you to accelerate investments or maybe get more aggressive in some of the growth platforms and initiatives that you spoke to at the Analyst Day and continue to speak to on your earnings calls? Well, I guess first I'd say we're working hard for the business, Adam. I mean demand kicking in, it just sounds Sounds easy. Sounds easy. It sounds easy, and it is. But I think importantly, we refreshed and renewed our core business in terms of the assets and the offerings and the stuff that we're driving in the market with is right on point with what people are needing today. And whether it's on the talent side of their business, whether it's on the supply chain side of their business, whether it's on the global operating model side of the business. The things we're looking to add fuel to that fire are some of those initiatives, which we now have had whether it's mobility or analytics, smart grid, we've had underway for 12 months to 24 months now. So, we see those things start to get up to altitude. There's about 22 specific initiatives there that we're driving across the business and each of those have traction not only have it in the developed markets, in terms of what we continue to invest not only in money but in talent in driving those things in the market. Okay, great. That's a good segue to my follow-up question and it goes to hiring and what areas are you hiring most aggressively whether it be skill set or geography? Well, I guess it's hard to say that I mean we're frankly if you look across the board, I mean we're bringing people in, in most of the geographies we have around the world. Yes. Obviously, we're hiring people in our consulting business and we're able to get the absolute best people in the management consulting space. We're able to bring those in. In fact, we just had a big group in St. Charles this week that are very seasoned and experienced people from the market who have just joined Accenture. Then, of course, Pam mentioned the numbers for the global delivery network, but the ramping there, that's on fire down there in terms of bringing people in and again we're able to get really good talent. So our recruiting engine, which we had on idle for a year is back at sort of full throttle at this point. And the good news is there's some great people in the market that we're able to bring on board. Okay, great. Thanks guys. Good job. Thank you, Adam. Brian Keane from Credit Suisse. Yes. Hi. I guess, Bill, I was just curious to know if you had any kind of long term top line targets for Accenture. I mean, we look at the growth of 7% to 10% in constant currency and it's pretty good. We think about the economy is still a little bit slower, but they are going over easier comps. If you could just help us think about the longer term for Accenture? Well, I mean, we look at the 7% to 10%, our mental model is more over a business cycle. Now, what stakes we put in the ground, that stuff we can we all decide as we go. But the first thing to us is we're getting momentum back and that's the thing we feel good about. We're now on a trajectory which we thought we would be and in honesty hoped we would be as we move into this fiscal year. 10% of a big number is a big number as I say to our guys and to grow the business 10% a year, it's a lot of work, it's a lot of people, you about the recruiting, you think about the coverage. But I would say this, the opportunities are out there and I think we can grow in a high quality way within our 7 to 10 band and that's the mission that we're going to stay on. And why is Accenture able to grow almost double than the industry average? Well, it's not about the industry growth rate. It's not about GDP growth rates. It's not about all those things, it's about having offerings that deliver business results. And if there's one thing that everyone should have learned from the downturn, its value for money has become the premium and having ideas and assets, having offerings that deliver business results and do it in the near term as opposed to 3 or 4 or 5 years out has been where the clients are drifting. And so as we refreshed our consulting offerings, they're all about delivering real value. And a lot of our technology work now, we sell it based on the business outcome we deliver as opposed to just the service we provide. And I think that gives us an incredible differentiator in the market where our clients are not willing to go. Okay. And just a quick one for Pam, the operating margins in the health and public service obviously are lower. What is that outlook going forward for that business? Well, as I said, I think it will bottom out this year and we're looking for it to be back on Julio Pancheros, Goldman Sachs. Julio Quinteros, Goldman Sachs. Hi, Julio. Hey, Pam. Hey, Bill. How are you guys? Real quickly, if we just to go back to the demand comments, just trying to sort of balance between sort of normal strength and seasonality and spending into the end of the year versus your ability to sort of sustain the growth as you go into 20 11? And I guess, to some extent, if you could also sort of add some comments in there about what you guys might be seeing on 20 11 budgets, any visibility there. So I guess what I'm trying to do is just make sure we're not mistaking just normal strength and seasonality at the end of this year versus the ability to sustain the growth rate into next year? Well, I don't I guess, I have a hard time relating to the seasonality thing necessarily, because the nature of the work we're doing, especially the consulting side, are things people do once every 5 years, right, as opposed to something that comes along. And so when you stand back from it, I think the quality and nature of the work are stuff that deliver real business outcomes and we think a lot of this demand we went and created. And we created it by having very specific offerings that deal with specific problems in specific industries. And so as part of realigning our sales agenda and refocusing on the market and as a part of looking at clients as markets, not just clients where we can bring all of Accenture to them. I think you see some of that in the fact that even in this downturn, we continue to add Diamond clients to the firm, which says a lot about our ability to be a full service provider across their needs and that's what we've been focused on. Got it. That's fair. And then just as a quick follow-up Just on the budget thing. Yes. Sure. Just budgets aren't soup for next year. But I would tell you this, if you look at confidence of executives in their business, people have pretty much run out run as long as they can without making major investments. Because the thing is the economy does come back, right, as we've talked about before on this call, it's coming back looking different. And that's what's driving the demand and business model changes and delivery channel changes and things like that. And so I think we're going to see consistent budgets for the traditional work, but we're going to see budgets that don't necessarily come out of IT, but come out of marketing or engineering or manufacturing to do the new things to sort of reinvent delivery models, production models and operating models. And so, we think that 2011 is going to be fairly robust in terms of business spending on important initiatives. Great. Thank you. And then just Pam on the quick follow-up, what were the headcount targets or the hiring plan targets for fiscal 2011? I might have missed that. No, I didn't give it to you. I mean, we hired roughly about 64,000 people this past year and we see 11,000 shaping up to be similar. And that's a gross number or a net number? That's the gross, as you guys like to call it. Got it. All right, guys. Thank you very much. Good luck. Thanks, Ilya. Thanks, Ilya. Karl Keirstead from Kaufman Brothers. Hey, Karl. Yeah. Hi. Thanks for taking my question. I had a question for you Pam just about the top line constant currency guide. It looks like the November quarter constant currency midpoint is about 9% and the comps get increasingly tougher throughout fiscal 2011. So that to get to the 10% the high end of the full year guide, it feels like we're going to need some other boost to the business. And I'm wondering what you can identify what that could be perhaps it's anniversarying some of the outsourcing renegotiations stuff like that. Maybe a little color just given that the seasonality may not get us there? Yes. I mean the guidance for the Q1 in local we can in that range. So, look for that. And then I think as you look forward, there are some of the anniversary things kind of finishing up. So that's in the mix. And I think that we just have more visibility into the year, as I mentioned before, in terms of 14% more contracted. So, we've looked at the pipeline and sort of how that's expected to shape up over the year and as this stuff starts and we're very comfortable at this point with the trajectory. Okay, good. And then if I could ask a quick follow-up again, Pam. You called out the fact that outsourcing bookings could be a little light in the November quarter. I noticed that they're usually light in the November quarter. And I'm wondering, were you just calling out normal seasonality? Or is there something else going on that's worth addressing? Yes. No, it's nothing unusual. It's just how we see the pipeline. And of course, those things take longer to develop and then book and it's just how we see the year shaping up. So I just thought I'd point that out today. Okay. Good results. Thanks. Thank you, Carl. We have Tim Fox from Deutsche Bank. Hi, thanks. Hi, Tim. I guess, Bill, first question, looking at Financial Services, it's obviously been a strong vertical for you and the industry broadly. And if you could just comment on the pipeline there, we've seen lot of post M and A integration work and that may be tailing off for the industry in general. But talk about what's driving the business in fiscal 2011 within Financial Services and is there any risk at all to that tailing off? Well, I don't see the M and A thing tailing off. In fact, it may accelerate as time goes on. Some of the Financial Services institutions are still somewhat challenged, 600 banks or however they put it, get redistributed it, if you will. The regulatory and risk stuff is very high. I mean, you can't get enough talent, you can't get enough coverage. There's just huge demand on that dimension. And then I think the other thing that they as the bank sort of get their game back and decide how they're going to differentiate, they really start to think about new delivery mechanisms for products and services and enhanced ability to reach consumers. And so it drives things in marketing and it drives things in customer service and things in distribution. And it drives really the demand for whole new platforms that are able to sort of operate in a more modern way than some of the architecture under the hood of these big financial services institutions on the follow-up, could you talk a little bit about the pricing environment? And within your guidance, are you embedding any pricing power at all in fiscal 2011? Or is it still too early to start pulling that lever? Yes. I mean, the pricing environment remains competitive. I would say it's also consistent. And in terms of how we look at it is we did give salary increases this year. Last year was sort of a down year for that as it was probably everywhere. And so in our pricing, we're looking to make sure that we cover those salary increases and get it in the pricing. Moshe Katra from Cowen. Hello Moshe. Hey, thanks. Nice quarter. Pam, you noted you said that you've seen a notable increase in demand for SAP and Oracle during the quarter. Can you kind of elaborate a bit on that? What's incremental? What's different than what you've seen in the past few years, maybe in the past few quarters? Thanks. Yes. Let me wade into that because I spend a lot of time on and around that. I think we always keep saying everyone must have one of these, but it turns out they don't. There are still companies engaging in big enterprise transformations. We still have a few R2s that we're replacing with sort of the latest versions of software. We're seeing more activity around sort of the business user piece of SAP, for instance. So a lot of the pieces around the fringe as it relates to analytics, as it relates to mobility, as it relates to getting insight instead of just information. And I think everybody has tried to leverage the investments they've made historically, getting better results. So, there's 2 kinds of things. There's the traditional business, which is putting in the big industrial strength global systems and we've got a lot of those going on. But there's also how do you leverage and get more out of what you've invested in where people are taking advantage of other features and new features of the certain software. And then frankly, there's some amount of them that swap one for another depending on mergers and acquisitions and things that happened in the marketplace as they move to standardize on one platform from 2 different ones, given 2 companies are now 1, there's a lot of demand to just help them through that journey. Most of these are multi year journeys as well. So, it continues to even though the work doesn't come all at once, it has a lot of staying power over time. And is that does that also embed any sort of new license sales, which is something that we haven't seen for quite some time or not yet? Yes. No, I've seen new license sales across the board, both in terms of the whole enterprise, all you can eat purchases, as well as people selling additional software capabilities and upgrades around the edge. So, I see some demand for there. I see people making investments to upgrade their capability, which does include some amount of new license sales. Well, that's helpful. And then the follow-up, Pam, the 64,000 new gross additions for fiscal year 2011, should we assume that the majority of these will be actually hired in some of your offshore locations, which is what you kind of which is what you've I think you've done in fiscal year 2010? Yes. I think you're right Moshe that the majority were there, but we did hire pretty nearly everywhere, including a lot in the U. S. So but yes, I believe it is the majority that did go into the global delivery network. Thanks. Nice quarter. Thank you. From the line of Jason Kupferberg from UBS. Hey guys, how are you? Hey, Jason. Good. Good. Question on the consulting bookings, going back to one of the earlier discussion threads around seasonality of the consulting bookings, up 10% quarter over quarter here, very unusual in a historical context and last quarter's 6% decline quarter over quarter was also kind of unusual. So I just wanted to kind of re ask one of the earlier questions a little bit differently. Is there anything structurally changing in terms of seasonal consulting bookings patterns going forward that we should expect? Or was this year just a little funky because maybe some decisions got pushed out from the May quarter due to the European sovereign crisis or some stuff that maybe should have fell into May, fell into August? Because then obviously you start to think ahead to November when we typically see a quarter over quarter uptick in bookings on the consulting front and not sure if that's going to be plausible this year, again, depending on how pent up demand actually played out here in August? I don't think there's anything structural, Jason. I really don't. I mean, it is true that we did have a very strong end of August in the sense that a lot came in that might have come in, in September. So there might be a little bit of that on the margin, but there isn't there is not anything structural. Okay. So in fiscal 2011, you would expect sort of traditional seasonality to prevail? Yes, such that it is. Yes. Well, I mean Q4 has always been a down quarter in consulting bookings, right? Sequentially? Yes. I mean just the nature of it. But I think the other word you used is funky. And there's no question, right, that this has been a peculiar year in terms of predictability and patterns, right? There's different people are getting are becoming profiles encourage at different times in the client base. So, but directionally, it's moving in the right direction. Okay. And then just on the constant currency revenue growth, I know you don't guide explicitly by geographic region, but can you give us some directional sense of how you see the 7% to 10% playing out among the 3 geographies, at least in terms of relative contribution to those growth to that overall growth rate? Well, as you saw, I mean, all three regions grew in the Q4 and so we expect the trajectory to continue. I'm sure there'll be some variation and I think that we're also expecting the mix of consulting and outsourcing to be roughly the same as it was this year. Okay, understood. Thank you. Ed Caso from Wells Fargo. Hi, Ed. Hi, Ed Cascio. Thanks for taking my question. Are you seeing any vendor consolidation in the various markets? And is that helping you or hurting you or is it contributing to any of your success of late? Yes. I think Pam mentioned somewhere in the 50 pages of her script. I think she mentioned the words vendor consolidation. And in fact, it is. I mean, it has past 3 quarters probably. First, we had people that were looking outside and we talked about framework agreements a few quarters ago and those are things that many times are from a vendor consolidation initiative. And then since that time, people continue to embark on that journey when they finally have 50 or 60 or 70 providers, some places, many more than that in terms of local body shops and people are just trying to get more focus on a few strategically important relationships where they make an investment in the supplier and the supplier makes an investment in them. And those things usually at the end of the day, many of those go our way. And you mentioned body shops and not chop shops. I was wondering if you could talk a little bit on the political front. And are your clients nervous about all the anti offshoring rhetoric at the moment? Yes. Well, it certainly has heated up in the last few weeks until the Senate put a plug in it yesterday, I guess. But frankly, no. I mean, everyone's been to this movie before. I was with 82 CEOs of U. S. Companies 2 weeks ago. These people are just solving for being competitive. And frankly, they're going to do what they need to do to compete on the global stage. And I think that this outsourcing broadly and leveraging offshore capabilities as a business practice, it's here to stay and I think everybody is pretty much focused on it. So I know there's a lot of noise around that, But frankly, I think what business is more concerned about is trade policies and they're concerned about regulatory things that challenge their ability to compete as a company on the global stage. And this outsourcing, offshoring, what have you, doesn't seem to be anything that registers on their radar at all. Thank you. Operator, we have time for one more question. That will come from Joseph Foresi, Janney Montgomery. Hello. I'm going to try and still squeeze 2 in here. My first one, I know you talked about this 14% contracted already for this year. Maybe you could just give us some context on how that compares to what you normally get historically? Obviously, last year was little bit different, but just on a historical basis, if you could sort of frame that for us. Well, it was 14% more contracted than we had last year. So it's a delta over a base of business, which we have a substantial part contracted when we begin any year. It just was that much over what we had last year in terms of the revenue projection. Okay. So how would your visibility this year maybe versus what you typically have historically? It's better. Much better. Okay. And then just the last here. I know you gave those financial objectives back in April. Obviously, the guidance has moved up on the EPS side. But maybe you could talk about has anything changed over the last 6 months that you've seen in the demand environment side of things? Well, I think the demand environment, I mean, as you can see by the Q4, I mean, we came in stronger than the midpoint. And the bookings were strong, the consulting bookings are strong. So there's even a little more momentum even than we hoped we'd have at this point. So I think that is good in that sense. I mean, it's always in the context of what continues to be an unpredictable environment in a lot of ways and the news has got all these swings in it. But just in terms of our pipeline and how our business is shaping up, it's a little better. Thanks. Let me just say a couple of things in closing. First, I am just delighted with our Q4 performance and our year overall. I think it shows both superior execution, which is what we're really focused on and it also shows growing momentum. We're incredibly positive about the future, but we know we're going to have to work very hard for it. Before I wrap up, I do want to take a moment and mention just a few changes we're making in our IR and finance teams. Richard Clark, who's been sitting here next to me for 4 years now and is Head of Investor Relations, is going to be moving into the role of Controller after we file our 10 ks. Tony Colan, who has been our Controller and Principal Accounting Officer for many years, will continue in his role as Principal Accounting Officer. Casey McClure will become Managing Director of Investor Relations. She's been very involved behind the scenes in our quarterly earnings process for the past 8 years as Finance Director of our government and our health and public service operating groups. And David Strawberry and the other 100 and In closing, I always want to thank the 204,000 men and women of Accenture who are aligned by a common set of core values and a commitment to helping our clients achieve high performance. That's what makes Accenture a very special company and enables us to deliver increasing value to our clients and our shareholders alike. Thanks very much for joining us on the call today. 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