Earnings Call: Q4 2017

Sep 28, 2017

Welcome to Accenture's 4th Quarter Fiscal 2017 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Angie Park. Please go ahead. Thank you, Greg, and thanks everyone for joining us today on our 4th quarter and full year fiscal 2017 earnings announcement. As the operator just mentioned, I'm Angie Parks, Managing Director, Head of Investor Relations. On today's call, you will hear from Peter Nunterm, our Chairman and Chief Executive Officer and David Rowland, our Chief Financial Officer. Officer. We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Pierre will begin with an overview of our results. David 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 fiscal year. Pierre will then provide a brief update on our market positioning before David provides our business outlook for the Q1 and full fiscal year 2018. We will then take your questions before Pierre provides a wrap up at the end of the call. As a reminder, when we discuss revenues during today's call, we're talking about revenues before reimbursement or net revenues. Some of the matters we'll discuss on the call, including our business outlook, are forward looking and as such are subject to known and unknown risks and uncertainties, including, but not limited to, those factors set forth in today's news release and discussed in our Annual Report on Form 10 ks and quarterly reports on Form 10 Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call. During our call today, we will reference certain non GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non GAAP money, where appropriate, to GAAP in our news release or in the Investor Relations section of our website at accentra.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to Pierre. Thank you, Angie, and thanks, everyone, for joining us today. We are very pleased with our excellent financial results for both the Q4 and the full fiscal year. For the year, we clearly strengthened our leadership position in the new digital, cloud and security related services. And once again, we gained substantial market share. We significantly increased our investments, including record investments in strategic acquisitions. And I am particularly pleased that we did all of this while continuing to return substantial cash to shareholders. Here are a few highlights for the year. We delivered very strong new bookings of $37,400,000,000 We generated record revenues for the year of $34,900,000,000 a 7% increase in local currency with broad based growth once again across our business. We delivered earnings per share of $5.91 on an adjusted basis, an 11% increase. Operating margin was 14.8% on an adjusted basis, an expansion of 20 basis points. We generated excellent free cash flow of $4,500,000,000 We returned $4,200,000,000 in cash to shareholders through share repurchases and dividends. And we just announced a semiannual cash dividend of $1.33 per share, a 10% increase over our prior dividend. So we had another very strong year, and I feel very good about our business, the execution of our strategy and the momentum we have as we enter the new fiscal year. Now let me hand over to David, who will review the numbers in greater detail. David, over to you. Thank you, Pierre, and thanks to all of you for joining us on today's call. Let me start by saying that we were extremely pleased with our results in the 4th quarter, which completed another outstanding year for Accenture. Our results continue to provide strong validation of our leadership position in the marketplace, the relevance of our offerings and capabilities to our clients and our ability to manage our business in a dynamic environment to deliver significant value to our clients, our people and our shareholders. Once again, our 4th quarter results reflect our ongoing focus to deliver strong and consistent financial results across our 3 key imperatives for driving superior shareholder value. So let me summarize a few important highlights before I get into the details. Net revenue growth of 8 percent represented the strongest quarter of the year as we continue to benefit from our diverse and durable growth model, which is powered by being a market leader in the New. Our digital cloud and security related services continued to drive very strong double digit growth and represented over 50% of our total revenues. Growth continued to be broad based with positive growth across the vast majority of our industry groups, geographic markets and businesses with many parts of our business delivering double digit growth. And we estimate that we grew more than 3 times the rate of growth of the basket of publicly traded companies as we continue to take share and strengthen our position as a market leader. Our operating margin of 14.2% came in as expected and up 10 basis points from last year, resulting in 20 basis points of expansion on an people. And with EPS of $1.48 in the 4th quarter, we delivered double digit EPS growth in both the quarter and the full year. And finally, we delivered another strong quarter of free cash flow, dollars 1,800,000,000 in free cash flow to be specific. In terms of capital allocation, it's noteworthy that we closed 10 transactions in the quarter, given us 37 transactions for the full year with record invested capital of $1,700,000,000 which provided scale and capabilities in key growth areas and further strengthened our leadership position in the New. So, we had a strong close to fiscal 2017, which yielded another year of broad based growth and significant market share gains, underpinned by strong profitability and cash flow. With those high level comments, let me turn to some of the details starting with new bookings. New bookings were $10,100,000,000 for the quarter. Consulting bookings were $5,100,000,000 with a book to bill of 1.0. Outsourcing bookings were 5 point $1,000,000,000 with a book to bill of 1.2. Our strong new bookings in the quarter represent 12% growth in local currency and reflected an all time high in new bookings in constant currency. Our bookings were well balanced and we achieved our target book to bill across each of our 5 businesses. As you would expect, the dominant theme driving our bookings in the quarter continued to be high demand for digital cloud and security services, which we estimate represented more than 60% of our new bookings. For the full fiscal year, we delivered $37,400,000,000 in new bookings, which represents 6% growth in local currency. Turning now revenues. Net revenues for the quarter were $9,100,000,000 an 8% increase in both USD and local currency, reflecting a roughly flat foreign exchange impact. This result was at the top of our FX adjusted range. Consulting revenues for the quarter were $4,900,000,000 up 7% both in USD and local currency. Outsourcing revenues were 4 point $2,000,000,000 up 9% in USD and 8% in local currency. Looking at the trends and estimated revenue growth across our 5 business dimensions, growth was led by application services and operations, which both posted double digit growth. Strategy and consulting services combined were flat in the quarter and the new, including digital cloud and security related services continued to deliver very strong double digit growth as I mentioned earlier. Taking a closer look at our operating groups, products delivered its 9th consecutive quarter of double digit revenue growth with 10% growth in local currency, led by strong growth across all three industries, especially in Europe and the growth markets. Financial Services posted its strongest growth of the year with 9% growth in the quarter, led by double digit growth in Banking and Capital Markets as a result of strong demand for our services in both Europe and the growth markets. Communications, Media and Technology also experienced an uptick in business momentum with 7% growth in the quarter, driven by continued strong double digit growth in software and platforms and low single digit growth in the other two industries. We were very pleased with our overall growth in CMT in both North America and the growth markets and we did see some improvement in Europe following several quarters of contraction. Resources grew 5% in quarter 4 building further on the improved growth rates we saw last quarter. The highlight of the quarter was double digit growth in chemicals and natural resources as well as balanced growth across each of the 3 geographic areas, each growing 5% in the quarter. We continue to see challenging market conditions in energy. Finally, H and PS grew 4% led by strong growth in public services globally. We continue to be pleased with overall growth in H&PS in both Europe and the growth markets. And while we saw some improvement in North America, our health business continues to be impacted by uncertainty in U. S. Healthcare legislation. Moving down the income statement, gross margin for the quarter was 31.5% compared to 31.3% in the same period last year. Sales and marketing expense for the quarter was 11% compared with 11.1% for the Q4 last year. General and administrative expense was 6.4% compared to 6.1% for the same quarter last year. Our operating income was $1,300,000,000 in the 4th quarter, reflecting a 14.2 percent operating margin, up 10 basis points compared with quarter 4 last year. As a reminder, the Q4 last year includes gains related primarily to our Duck Creek transaction. The following comparisons exclude these impacts and reflect adjusted results. Our effective tax rate for the quarter was 23.9% compared with an effective tax rate of 24.3 percent in the Q4 last year. Our diluted earnings per share were $1.48 compared with EPS of $1.31 in the Q4 last year and this reflects a 13% year over year increase. Days services outstanding were 39 days compared to 41 days last quarter and 39 days in the Q4 of last year. Our free cash flow for the quarter was $1,800,000,000 resulting from cash generated by operating activities of 1,900,000,000 net of property and equipment additions of $191,000,000 And our cash balance at August 31 was $4,100,000,000 compared with $4,900,000,000 at August 31 last year. With regard to our ongoing objective to return cash shareholders, in the Q4, we repurchased or redeemed 5,200,000 shares for $657,000,000 at an average price of $127.09 per share. At August 31, we had approximately 3,100,000,000 dollars of share repurchase authority remaining. As Pierre mentioned, our Board of Directors declared a semi annual cash dividend of 1.3 $3 per share. This dividend will be paid on November 15 and represents a 0 point 12 percent increase over the previous semi annual dividend we declared in March. So before I turn it back over to Pierre, I want to reflect on where we landed for the full year across the key elements of our original business outlook provided last September. Of course, I'm pleased that once again, we successfully managed our business to deliver all aspects of the business outlook we provided at the beginning of the fiscal year. Net revenues grew 7% in local currency for the full year, again demonstrating the power and durability of our growth model in a highly dynamic environment. Even with unexpected headwinds in some parts of our U. S. Business, we delivered in the upper end of our guided range and in fact outside of the U. S, we delivered almost 10% growth in the rest of our business. On an adjusted basis, operating margin diluted earnings per share were 5.91 dollars diluted earnings per share were $5.91 reflecting 11% growth over fiscal 2016 and was at the upper end of our guided range. Our free cash flow of $4,500,000,000 was above our original guided range and reflected a free cash flow well in excess of our net income. And we delivered on the objectives of our capital allocation strategy by investing 1 point $7,000,000,000 in acquisitions, while at the same time returning $4,200,000,000 to our shareholders through dividends and share repurchases. So again, we had a strong year by any measure and certainly as it relates to delivering against the guidance we provided at the beginning of fiscal 2017. Now let me turn it back to Pierre. Thank you, David. Our very strong performance in fiscal year 2017 on top of our outstanding results for the last two fiscal years demonstrate that we are executing our growth strategy very well in a durable and sustained way. As I reflect on our performance for the last 3 years, I am very pleased that we delivered compound annual revenue growth of 9% in local currency as well as 9% compound growth in adjusting earnings per share. And I'm especially proud of the shareholder returns we generated over the same 3 year period. We delivered a compound annual total return to shareholders of 20%, twice the total return of the S and P 500. We continue to benefit from the actions we have taken to transform Accenture to rotate our business to new high growth areas and to invest ahead of the curve. The breadth and scale of the capabilities we provide end to end across strategy, consulting, digital, technology and operations are absolutely unique in the marketplace. This is why Accenture remains the partner of choice for the world's leading companies in executing large scale transformation programs. We are helping a leading global bank with a mission critical program to meet new regulatory requirements. Leveraging our global capabilities across consulting, digital technology and operations, we are delivering significant changes to the core banking platforms, which handles over 1 $100,000,000,000,000 of transactions per year. I am especially pleased with the leadership position we have built in the new digital, cloud and security related services, all underpinned by new IT. In fiscal year 2017, the new accounted for about $18,000,000,000 or 50% of total revenues, a very significant increase from roughly 40% of total revenues just 1 year ago and 30% of total revenues the year before. We have truly transformed Accenture capabilities to help our clients embrace the new, applying innovation and intelligence at the heart of their organizations. We are collaborating with Roche, the health care company, to develop an analytics platform that will improve care for millions of patients around the globe. Built on the Accenture Intelligent Patient platform, this new solution enables Roche to analyze data in a secure environment and generate insights to provide patients with more customized care. The rigor and discipline we use in running our business is key to consistently executing our growth strategy, and we systematically apply the same discipline to our investments, including acquisitions. Acquisitions enhance our differentiation in the marketplace and our engine to drive organic growth. Over the last 3 years, we deployed $3,400,000,000 in roughly 70 acquisitions. This includes a record $1,700,000,000 in fiscal year 2017 alone. And over the last year, we expanded our relationship with key ecosystem partners, including Amazon Web Services, Google, Microsoft, Oracle, Salesforce and SAP. And just last month, we formed a new partnership with Apple to help businesses transform how they engage with their customers using innovative solutions built on iOS. Now turning to the geographic dimension of our business. We continue to rotate to the new consistently and successfully around the world, especially in our largest markets. We delivered another year of strong and balanced revenue growth, gaining market share in each of our geographic regions. In North America, we delivered 4% revenue growth in local currency for the year, driven by the United States. In Europe, we grew revenues 8% in local currency, with double digit growth in Germany and Switzerland as well as high single digit growth in the UK, France and Spain. And I am particularly pleased that in Growth Markets, we delivered 12% growth in local currency, driven primarily by very strong double digit growth once again in Japan as well as double digit growth in Australia, Singapore and China. Before I turn it back to David, I want to share a few thoughts on our commitment to developing talent. As a professional services company, our people ultimately make the difference in delivering high quality services to clients. This is why we are so focused on attracting the best people and investing to further develop their skills. To ensure we have the most relevant talent at the most senior levels, we promoted 600 new managing directors in fiscal year 'seventeen and hired more than 300 Managing Directors from outside Accenture. These leaders are bringing highly differentiated industry expertise and specialized skills, especially in the new. At the same time, we are making a significant investment in rescaling our people to help them stay relevant in key areas such as cloud, artificial intelligence and robotics. In just over 18 months, we have trained more than 160,000 people in new IT alone, including automation, agile development and intelligent platforms. And at Accenture, we embrace diversity as a source of creativity and competitive advantage. We bring together people of different genders, races, cultures and perspectives, which make us smarter, more innovative and more relevant. I am so privileged to lead our company of 425,000 talented people working in 55 countries around the world, who bring their unique knowledge and experience to our clients each and every day. With that, I will turn it over to David to provide our business outlook for fiscal year 2018. David, over to you. Thank you, Pierre. Let me now turn to our business outlook. For the Q1 of fiscal 2018, we expect revenues to be in the range of compared to the Q compared to the Q1 of fiscal 2017 and reflects an estimated 5% to 8% growth in local currency. For the full fiscal year 2018, based upon how the rates have been trending over the last few weeks, we currently assume the impact of FX on our results in USD will be about positive 3% compared to fiscal 2017. For the full fiscal 2018, we expect our net revenue to be in the range of 5% to 8% growth in local currency over fiscal 2017. For operating margin, we expect fiscal 2018 to be 14.9% to 15.1%, a 10 to 30 basis point over adjusted fiscal 2017 results. We expect our annual effective tax rate to be in the range of 23% to 25%. This compares to an adjusted effective tax rate of 23% in fiscal 2017. For earnings per share, we expect full year diluted earnings per share for fiscal 2018 to be in the range of $6.36 to $6.60 or 8% to 12% growth over adjusted fiscal 2017 results. Now turning to cash flow. For the full fiscal 2018, we expect operating cash flow to be in the range of $5,000,000,000 to 5 $300,000,000 property and equipment additions to be approximately $600,000,000 and free cash flow to be in the range of $4,400,000,000 to $4,700,000,000 generating free cash flow in excess of net income. We expect to return at least $4,300,000,000 through dividends and share repurchases and also expect to reduce the weighted average diluted shares outstanding by about 1% as we remain committed to returning a substantial portion of cash to our shareholders. With that, let's open it up so that we can take your questions. Angie? Thanks, David. I would ask that you each keep to one question and a follow-up to allow as many participants as possible to ask a question. Operator, would you provide instructions for those on the call? Your first question comes from the line of Bryan Bergin from Cowen. Please go ahead. Good morning. Thank you. Within your revenue guide for fiscal 2018, can you just talk about what your organic growth assumption is there within the total guide? And then as well as your M and A spend projection for the year and that contribution? Thanks. Yes. Thank you, Brian. Yes. So we when we look at next year, we expect from an investment standpoint and acquisitions that we would be in the range of 25% to 30% of our cash flow. If you calculate that in dollar terms, it's in the range of $1,100,000,000 to $1,400,000,000 And as we've said many times previously, we certainly have the ability to go above that range if opportunities present themselves during the fiscal year. And so, our inorganic strategy is an engine for organic growth and as a means of bringing on critical skills and capabilities in high growth areas will continue. It's an important part of our strategy. That assumption combined with what we've just done in fiscal 2017 would translate to inorganic revenue contribution in the range of 2.5% to 3% in fiscal 2018. Okay. Thank you. The follow-up I have, just on platforms, can you just talk about how much your business is derived from your various platforms? It seems like a lot of the award announcements this quarter involved some sort of a proprietary platform, your cloud, your insights platform, insurance products. Just give us a sense of what that's doing and changing the model of your business? Thanks. Yes. So, if you look at all the platforms and I mean, David, you probably know the number better than me, it would be what in the range of 20% Yes. In that range, 20% to 20 5% if you looked at the major platforms. Yes. So, it is significant, but it is not the majority of what we do. So, we like a lot what we are doing with platforms because for us, it's a source of delivering huge value for our clients and as well the base to sell our consulting and also businesses on back of this. Now, as you know, we are leading with SAP. We are leading with Recall, with Microsoft, with Salesforce, with Workday, with Microsoft. So we are today the leading partners. And you've seen that we have opened new fronts with coming leaders such as Google, such as Amazon Web Services. We're going to develop platforms on top of the cloud. And you certainly heard about the announcement we made with Apple to develop solution based on iOS. So we are very active on platform. We are very pleased with what we are doing. And I'm especially pleased that we are leading with their new platforms. When we talk about SAP, we're talking about SAP HANA or recall in the cloud. The new generation of service with Microsoft. And you probably have seen an announcement we made between Avanade, Accenture and Microsoft recently, just last week. And so we're always aiming at leading not with the solution of yesterday, but with the solutions of tomorrow and taking a leadership position, which is exactly what we do. Yes. Thank you, Brian. Thanks, guys. Your next question comes from the line of Tien Tsin Huang from JPMorgan. Please go ahead. Hi. Good morning, Tien Tsin. Good morning. It was good to talk to you guys. I guess I'll ask on organic growth. Assuming what you did in organic in 2017, it looks like a little bit of deceleration implied at the midpoint in terms of organic growth. Am I looking at that correctly? Is there anything to explain that assumption? No, I would say that if first of all, I would say, Tien Tsin, as you know that while our range reflects what we think is possible across a broad 3 point range. We are always focused on being toward the upper end of the range. And if you were to look at, let's say, the upper third of the range and if you look at the 2.5% to 3% and if you were to then look at that against the market the organic market growth would continue to reflect us taking significant share, which is our strategic objective. And so it's not intended to imply deceleration. I mean, we feel good about the market as we see it. Yes. That's a fair point. To add on this and to be very clear, I think what we are planning for next year is extremely consistent with 2017. And to be honest, it's consistent with 2016. Now it depends on when you land in the range. And as David said, we are targeting to be more on the upper part of the range. But the contribution of inorganic has always been in the recent past in the range of 2% plus and anything between the 2% to 3%. And so our organic growth is very consistent with the prior year. And as David said, has been built, if you will, to grow significantly more than the market. And when I say significantly more, it's probably a minimum of twice the market. So that's the way we see our organic growth today and potentially tomorrow. So very consistent. Right. Yes, for sure. At the upper half, it would be consistent with what we have organic over the last actually 3 years, like you said. I know it's splitting hairs over a percentage point here, but that's helpful. My follow-up, just I guess on geographic growth, both of you called out North America versus the rest. Do you expect the trends to change between North America and rest of world for Accenture in fiscal 2018? Yes. And I'm going to take my non American hat And I'm feeling confident that my U. S. Colleagues and leaders will drive a more growth next year. I mean, to be curious again, we shared with you these last few quarters that indeed the growth in the U. S. Didn't come exactly as expected for reasons we shared with you that probably the market would markets and our clients expecting some reforms. And these reforms had not come as expected and creating a kind of wait and see positioning with our clients, especially in health and public sector with all the uncertainties around the health care reforms. Now we have a year behind us, and I believe that my scenario, if you will, that the business has factored what they could or could not expect from the administration. So to some extent, there is less uncertainty with what might come. Now we still believe that we're going to see tax reform or some evolution that's going to be good for the business. But on balance, what we expect is that next year, the contribution of the U. S. And North America will be incrementally better than this year. Yes, absolutely. Great. I believe in the U. S, my friend. Your next question comes from the line of Keith Bachman from Bank of Montreal. Please go ahead. Hi, Keith. Good morning. Thanks very much. I wanted to ask about the consulting business to start off with. If I look at the signings growth, it's a bit of a sign curve where 2013 was a negative year, 2014 was very good, 2015 was a down year, 2016 was tremendous. This year the signings are call it low single digits. It would seem that based on that cycle, 2018 should be a pretty good year for signings in the consulting business. But I just want to hear your feedback on how you're looking at that business in particular. Yes. So, sure. Let me maybe take it and then, I mean, David, you can add on it. I mean, first, let's start extremely rapidly by positioning what is the role of consulting at Accenture. As you know, at Accenture, we have different I mean, we have not different businesses. We have synergistic businesses, strategy consulting, where we shape the agenda with the client, advisory services, if you will, digital and technology, where we are building leading edge solutions and operations, where we operate on behalf of the clients. And they are not independent business at all. The formula of Accenture is end to end integration of these services to deliver transformation and to commit on an outcome. The role of the consulting business in that supply chain, if you will, is to shape the client's agenda, is to work with the client and orchestrate the rest of our businesses and is, of course, to sell consulting services in addition of the rest. So they are, for us, the business orchestrator, if you will, of the relationship with the clients. So at the end of the day, when we are looking at the performance of Accenture, indeed, we're looking at each part because we want each part to operate in the best market condition. But no doubt that we are much more focused on the value that all of this capability bring in driving overall growth faster than the market. Now so the role of consulting is to shape, is to orchestrate the depth and breadth of our services. And when I look at the market conditions, we would expect certainly our consulting business to be at the mid single digit range. And this is where we believe that the consulting market is all about. But again, I would like all of you not to take consulting in isolation because this is not the operating model of Accenture. My feedback or my second question rather is, David, could you talk a little bit about the puts and takes associated with the operating margin range? What are the variables that would cause you to be at the lower end of the range? And what are the variables that would cause you to be at the higher end of the range? Yes. So, I mean, there are a lot of things in the mix when we look at operating margin. I mean, first of all, just to kind of state the mathematically obvious, the 10 basis points is, let's say, just under $40,000,000 for the year, which on our base of operating expenses is small in the context of the total operating expense of our business. Of course, it's significant in the context of delivering the year in the quarter. But there are a number of things in the mix. First of all, is an assumption on the level of investments that we will continue to make in our business and our people. And I can tell you that our intent in fiscal 2018 is to continue to ramp up our investments and to invest at a rate that is faster than our rate of revenue growth. And so in essence, what that means is that our business model, again, as a reminder, is that we actually strive to have a much higher level of margin improvement underneath our business, if you will, of which a substantial portion of that margin expansion we invest into the business and our people with in the range of 10 basis points to 30 basis points of expansion being delivered in our results. And so the things that drive that, I mean, first of all, would be the progression of contract profitability. So that gets to And in a normal year, we would expect that our And in a normal year, we would expect that our contract profitability would continue to progress in a positive way and certainly that's our assumption next year. The other big driver of our profitability is the level of payroll efficiency that we have in our business. There are many things that go into that, including the geographic distribution of our heads, the level of utilization we run at, as well as the extent to which we're choosing to make talent investments and bring on board critical skills that we think are going to position us well for the future. I mean, really, I could stop there. I mean, those are the 2 biggest drivers. How we manage the overall relationship of payroll progression to revenue. And then also very importantly, what we do with the economics of the portfolio of contracts that we deliver to our clients each year. All right. Thank you, gentlemen. Appreciate the questions. Thank you. Your next question comes from the line of Darrin Peller from Barclays. Please go ahead. Hey, thanks guys. Just a follow-up on that point on the margin front. I mean, there's clearly a very high demand for labor around some of the new opportunities that you guys are doing so well. And with that in mind, can you just give us a little more specifics on what wage inflation what type of wage inflation you'd expect to see? What type of pricing you can use to offset that? Is there enough talent out there? Are you finding any challenges around that? What's the environment like right now on those two fronts? Yes. It's hard to answer the wage inflation and price inflation question in aggregate because it means there's so many components of our business and you really have to get into each component. Also, I don't like commenting on the wage inflation because it can be misinterpreted not only externally, but sometimes internally as well by our people. It's just hard to talk about in aggregate. What I can tell you is that our business discipline is that we work very hard looking at the wage dynamics, if you will, across each of the markets that we operate in. We have specific targets for where we want to be to market in all of our workforces. Obviously, our goal is to always be at a level where we can attract the best talent in the market. We are very, very disciplined in the way we manage the progression of wage inflation and what we are able to do in our pricing because that fundamentally drives our economics. So that's kind of a foundational element, if you will, of how we manage the operations of our business. And I would say in general, I don't see anything unusual about 2018 either from a wage standpoint or a pricing standpoint, let's say in the round, I don't see anything different in 2018 than really the last couple of years we have operated in. Yes. And maybe to add 3 elements on this to your question, are we attracting the people and based on what condition? Group that we are clearly focusing on attracting the best talent. And the fact that we've been able in fiscal year 2017 to recruit 300 managing directors from the outside is for me just the illustration that indeed we are an attractive company. And we have no issue to hide even what I would call iconic talent, I. E, some of the best and most differentiated talent in the marketplace. And they're coming to us for less than three reasons, again, another three. I mean, first, with $18,000,000,000 in the New, 50% of our revenues and double digit growth year after year, They understand that we are serious about leading in the new, and of course, it's attractive for that. I mean, 2nd, they're joining us because we are the only professional services company having end to end businesses. And so they know if they are joining in strategy or in consulting, they will benefit from the rest of Accenture. Or if they are joining technology and operations, they will benefit from our consulting and advisory services. And 3, we are competitive in the way we compensate and reward these people. And certainly, they've been watching the stock evolution over these last 3 years and they love that. All right. That helps. Pierre, just one quick follow-up. When thinking about the new, first of all, what would be the most exciting areas that you're expecting right now for 2018 embedded in that large piece of revenue that's now 50% that you find is the most exciting and the most innovative right now, the most in demand? And then did you talk to David about a growth profile of the new for 2018 versus the rest of the business? And thank you very much, guys. Yeah. I mean, I'm excited with everything regarding the news. So by selecting a few, I don't want to disappoint as a part of the business because, for instance, all what we are doing in Accenture Interactive is absolutely great. And I'm very excited that we're going to launch next year new services around some of ultimate intelligent and purpose marketing services. So I'm very excited with the next generation of marketing services we might launch. I'm absolutely, of course, excited with all the artificial intelligence, machine learning and what we have in front of us, where, again, we're going to, in 2018, make significant investments. I'm we are already looking, if we want to look at things which are more pioneering, if you will, at the usage of quantum computing in the business. And I'm not seeing a lot of our peers or companies already making business cases based on quantum, which is what we are doing with Biogen, these biogenetic companies, where we are working with them in using quantum computing to genome analysis and segmentation and other kind of services. Immersive realities is something we like a lot. How are we going to use virtual and augmented reality in the context of the business? And maybe finally, data driven activities and services. Data is the new currency of the world. It's not anymore the dollar, the pound or the data you can use the data to deliver value. So we are extraordinarily focused on the of a data centric agenda in all the services we're going to propose. So an exciting agenda in front of us and stay tuned in 2018, we'll make few announcements. Right. And just to close out your question, even as our the New has continued to scale so significantly, we do expect continued strong double digit growth in the New in fiscal 2018. Great. All right. Thanks guys. Great. Thank you. Your next question comes from the line of James Friedman from Susquehanna. Please go ahead. Hi. Thank you. It's Jamie at Susquehanna. Hi, Jamie. Hi. I just wanted to you were going kind of quick there, David. I think there was an incremental disclosure, at least incremental to me. Did you disclose the new as a percentage of the bookings to? I thought you said 60%. Yes. I said right. I did say that. I don't know that I've said that previously. You're right. Good catch on your part. Every once in a while, we sneak things in there. But I did say in the Q4, our new bookings were about 60 the new represented about 60% of our new bookings. And I did that as just an illustration again of the extent to which our businesses rapidly continues to rapidly rotate to the new. Okay. And then if I could for my follow-up, I'm not sure if I should go operating group or business dimension. I'm going to go business dimension. So Pierre, with your previous comments about strategy consulting, I'm looking at the fact sheet bottom left corner, it decelerated to flat growth. You're suggesting if I'm hearing you right, you're suggesting that will accelerate now to mid single digit. Maybe if you could provide some of the characterization of that market. Is there any cannibalization going on in that market like it might move from strategy consulting say to app services to operations and it just doesn't appear in strategy consulting? Some perspective on the trajectory of strategy would be helpful. Thank you. Yes. Let me just mention a few things and then Pierre, I'm sure we'll also round it out. But maybe just to kind of get grounded in the facts a little bit. So first of all, Pierre did say and so let me just state again that when you look at strategy consulting combined, we expect that it will be in the mid single digit range. Let me also say that it's true that in 2017, the year we closed, strategy consulting was lower than what we had expected when we started the year. And I would say that a primary contributor to that was what we've commented on throughout the year with the dynamic in the United States. And so the fact is if you look across our broad business, there many parts of our business, many geographic markets where the strategy and consulting growth is very much aligned with kind of this mid single digit expectation. So it's important to note that in the mix in 2017 was the impact of some of the things that we've talked about in the U. S. The third thing I would say is that there is some ebb and flow of the revenue growth across our businesses. I mean, if you look at last year, meaning 2016, for example, we had strong double digit growth in consulting and strategy. And certainly, the nature of the work that we were doing in 2016 really contributed to and set the table for the very strong revenue growth that we had in both the application services operations in fiscal 2017. And so there is some connection between our businesses that I think is important to point out as well. The final thing I would say is that if you peel the consulting and strategy growth back and look at the growth of strategy consulting for work that is related to the new, that portion of strategy consulting is growing double digit. And so the services related to the new continue to grow quite fast. And Pierre, do you want to add anything? No? Okay. Yes. That's very helpful, Jamie. Thank you. Your next question comes from the line of Lisa Ellis from Bernstein. Please go ahead. Good morning, Lisa. Hi, good morning, guys. First question is M and A related. I just wanted David, maybe just a little color on how we should think about the M and A contribution. I was just kind of looking at you just said you spent $1,700,000,000 in fiscal 2017 and that will roughly speaking contribute like 2.5 to 3 points of revenue growth in fiscal 2018, which is roughly the same number or slightly lower. So should we be thinking about it more just as a form of R and D spend essentially versus a revenue accelerator? So let me just be clear, maybe I misunderstood what you said. So the inorganic contribution in fiscal 2017 was in the range of 2%. It was just a tad higher than 2%, it rounds to 2%. And the 2.5% to 3%, I mean, Lisa, as you know, we talk about inorganic on a rolling 4 quarter basis. And I mean, it truly is a pretty straight mathematical computation. If you look at the timing of when we did our acquisitions throughout fiscal 2017, as well as it's hard to predict exactly when acquisitions will occur as we look out over the 4 quarters of 2018. But if you make a reasonable assumption about the phasing, all of that in the mix would put us in the 2.5% to 3% range, which would be a stronger contribution than what we had incrementally stronger contribution than what we had in 2017. Yes. Maybe, David, just for all clarity, I think that will be good you explain how we're tracking this acquisition on what on a 12 to 18 months and then it's becoming organic because otherwise it might be confusing for the audience. So could you re explain how we measure this? Yes. So our organic revenue is based on a rolling four quarters, trailing 4 quarters of our acquisitions. And so in the quarter, we acquire a company, it's in our inorganic for 4 quarters and then it becomes part of our organic because our model, Lisa, as you know is that we don't buy these companies to have them operate as an appendage. We rapidly integrate them really as an engine for organic growth. Did I misunderstand your question or was that helpful? Yes, that was helpful. I guess I was clarifying that right that the that there's not that this expenditure on a lot of how we should think about the acquisitions because there are these small tuck ins is like an R and D investment, right? And so yes, you've got the sort of mathematical addition of the run rate revenue from those companies, but then largely they just roll into your base kind of organic development model after that. Is that right? Meaning versus like creating sort of an acceleration in the underlying organic revenue themselves. It's more it's just an addition for 1 year and then beyond that it just rolls into the base? It is absolutely right. And of course, if you would look over 5 years, the contribution of our acquisition that does represent a significant part of the growth of Axientra, if you look at this on aggregate level year after year. So you're right, we're acquiring companies for deep capabilities, what probably you're referring as R and D. And then after a period of time, it's becoming organic. And it's totally absorbing the organization and in our organic numbers. Okay. And then if you don't mind as my follow-up, a question on the outsourcing side, a follow-up to the earlier question around the acceleration in outsourcing both bookings and book to bill are both running very strong. Is that are you seeing a continued evolution in demand there for the new into so should we be interpreting that as that's now longer duration work related to the new? And in that context, are you also then seeing a shift in a competitive set that you're competing against for that work? So let me just so let me comment is that when you look at outsourcing or if you as a type of work or if I was to say, if you look at application services and operations, which were big growth contributors in 2017, a high percentage of those revenue streams are in the New. So it's important to understand that when we talk about operations, we're not focused on legacy operations. We're focused on the operations marketplace that we have created and defined, which is all based around Business as a Service in the cloud with security, all powered by the new. And so, yes, I mean, I think there is a I think you could conclude that there is a cycle that is the new technologies have matured. It reflects and they are more in kind of an operations mode, if you will, as opposed to early stage development, deployment, etcetera. There's a natural cycle And I think that certainly contributes to what we're seeing in operations and even application services to some extent. Yes. And then application services to add on this, because what you said is very important, David, is indeed outsourcing is rotating to the new or what we're calling outsourcing. And application services, we are now selling more and more of our services based on automation, robotics, intelligent solutions based. And again, we are reinventing application services to differentiate. Sell more or harder of the legacy or the classic IT and the players, and we are part of that camp, if you will, who are reinventing this service by providing much more of the new technologies and new features to capture more growth. And I believe that if our outsourcing business is double digit and is very vibrant, it's because it has rotated to the new and not because we are trying to sell more of the legacy. Your next question comes from the line of Joseph Foresi from Cantor. Please go ahead. Hi. I I wanted to come at acquisitions, I guess slightly differently. How do you manage the integration of all these businesses? And at what point do you think it might start to impact the culture? And is the pipeline there incredibly fertile? I love your question. Because, of course, in order to rotate to the new, we have to activate this evolving strategy of making more acquisitions to get to talent we couldn't develop organic and we had to bring from the market. And the big question is how do you integrate and how do you manage the culture. And this is something we communicated, but I'm pleased to do that with a larger group that we developed this concept, which might be perceived as extremely simple, but it's more totally profound that it sounds like, which is at Accenture, we are developing a culture of cultures. Indeed, we're coming from a long tradition, like many global group, of the one, one culture. I mean, everything was 1. You wanted to be 1 in the world. And I think this cycle is behind many of the beer corps, certainly behind us. As you're operating in multiple countries, I. E, multiple cultures, or when you're accommodating multiple services, I. E, multiple cultures, you need to create an environment which can celebrate different of cultures. And when we think about the one, the glue, if you will, it's more on our values, the kind of intangible things we might expect from all our practitioners that we're going to keep their cultures. As an illustration, I will take shield because I think it's making exactly the right illustration of what you're saying. When we decided to be in the design and experience led kind of services, quite far from Accenture. We identified a company called Fjord, 180 people at the time, less than ten studios around the world. Said we're going to keep the field culture, the studio, the way they work. We're going to keep the field identity and brand. And indeed, we could integrate them in Accenture more from a backbone standpoint, from a value standpoint, but they were sharing our values anyway. And they will benefit from our distribution channels. After less than 4 years, we are celebrating 1,000 people in the field. They have a formula brand in the marketplace. But if you would talk to the fuel people, they are an interesting hybrid. They live and breathe the fuel and they live and breathe the Accenture. That's what now we want to accommodate with this concept of culture of cultures, which I think is reasonably a strong evolution for large big global group who've been developing with the concept of everything is 1. At Accenture, as we said, we love diversity. Got it. And then my follow-up, can you talk about the decline in the half of the business outside the New? How do you think about it? And can it get worse as the IT budgets get reallocated to the new? Thanks. Yes. I mean, at the end of the day, our job is to be relevant to the client agenda and to understand at what speed they're going to evolve the kind of services we could provide. What we do see is indeed the overall if you look at the overall spend we could address, it's growing. If you add the marketing spend to the IT spend and to the spend, they are allocating to what we're calling more at the heart of the operations, which all the industrial Internet will tap on. So if you look at this from a legacy IT, it's flat or shrinking. If you look at the addressable spend for us, it is growing. That's why at Accenture, we have decided 5 years ago in our strategy to stretch and to extend our reach from where we were famous before, support function, finance, HR, supply chain and IT, to be relevant still in that space of support and IT, stretching to the front line, addressing the marketing spend and stretching to the operation in the field line through the industrial Internet, so we could expand the addressable budget we are tapping on. And we benefit of this stretching the boundaries of our scope because should we have stay in the prior scope, then it would be much harder. So all the work is to extend your scope to expand the addressable spend. Got it. Thank you. Okay. I think, Angie, we're getting at the end of the call. So let me wrap up and thanking again all of you for joining us on today's call. In closing, very simply, we delivered an excellent fiscal year 2017, we believe, strongly. We finished this year strong, and I'm extremely pleased with the momentum as we enter the new fiscal year. I believe that with our highly relevant and differentiated capabilities we are building, the dedicated and passionate Accenture people and the very disciplined management of our business and investments, I'm very confident in our ability to continue driving profitable growth and delivering value to our clients and shareholders. We look forward to talking with you again next quarter. In the meantime, of course, if you have any questions, please feel free to call Angie and the team. All the best to all of you. Ladies and gentlemen, this conference will be available for replay after 10:30 Eastern Time today through December 21. You may access the AT and T teleconference replay system at any time by dialing 1-eight hundred-four seventy five-six thousand seven hundred and one and entering the access code 428,382. International participants dial 320-365-3844. Those numbers once again are 1-eight hundred-four seventy five-six thousand seven hundred and one or 320-three 65-three thousand eight hundred and forty four with the access code 428,382. That does conclude your conference for today. Thank you for your participation.