Accenture plc - Class A (ACN) — Q4 2015 Earnings Call Transcript

Thank you, Greg and thanks everyone for joining us today on our fourth quarter and full-year fiscal 2015 earnings announcement. As Greg just mentioned, I’m KC McClure, Managing Director, Head of Investor Relations. With me today are Pierre Nanterme, our Chairman and Chief Executive Officer; and David Rowland, our Chief Financial Officer. We hope you’ve had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Pierre will begin with an overview of our results. David will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for both the fourth quarter and the full fiscal year. Pierre will then provide a brief update on our market positioning before David provides our business outlook for the first quarter and full fiscal year 2016. 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 reimbursements or net revenues. Some of the matters we'll discuss on this 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-K 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 financial measures where appropriate to GAAP in our news release or in the Investor Relations section of our website. 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, KC, and thanks everyone for joining us today. We are extremely pleased with our strong financial results for both the fourth quarter and the full fiscal year. Our excellent fourth quarter performance continues the momentum we have been building in our business all year. For the full year, we delivered strong new bookings, generated record revenues, grew EPS faster than revenues and generated strong free cash flow, all while continuing to invest in our business and delivering significant value for clients and shareholders. Here are a few highlights for the year. We delivered very strong new bookings of $34.4 billion, we grew revenues 11% in local currency to a record $31 billion, our growth was broad-based across the business including double-digit growth in four of our five operating groups and all three geographic regions. We delivered earnings per share of $4.82 on an adjusted basis, a 7% increase. We expanded operating margin 20 basis points to 14.5% on an adjusted basis; we generated free cash flow of $3.7 billion. We returned $3.8 billion in cash to shareholders through share repurchases and dividends. And we just announced a semiannual cash dividend of $1.10 per share, an 8% increase over our prior dividend. So, I feel very good about what we delivered in fiscal year 2015. Our outstanding performance clearly demonstrates that we continue to provide highly relevant and differentiated services to all clients. Now, let me hand over to David. David, over to you.

Thank you, Pierre and thanks all of you for joining us on today’s call. Let me start by saying that we were very pleased with our overall results in quarter four which culminated an extremely strong year for Accenture. Once again, our results reflect our unique position in the marketplace, the relevance of our growth strategy and our ability to drive our business to produce value for our clients, our people, and our shareholders. As you listened to our prepared remarks, you’ll hear continued consistency in the key business drivers and three overriding themes; durability of revenue growth, sustainable margin expansion, and strong cash flow with disciplined capital allocation. Before getting into the details, I'd like to emphasize a few highlights in each of these areas. Revenue momentum continued with very strong local currency growth of 12% even against our toughest quarterly compare of the year. A key characteristic was our balanced growth across our operating groups, our geographic regions, and our five businesses which speak of the durability of our growth strategy. Our rate of growth continued to outpace the market as we gained share in most dimensions of our business. Driving profitable growth with sustainable margin expansion continues to be our focus. And in the fourth quarter, our operating margin came in as expected and consistent with last year. For the full year, we delivered 20 basis points of margin expansion on an adjusted basis while investing significantly to position our business for long-term market leadership. And finally, we delivered another quarter of strong cash flow, $1.4 billion in free cash flow to be specific. In terms of capital allocation, it's noteworthy that we closed 11 acquisitions in the quarter. Given us 18 acquisitions for the full year, we’ve invested capital of $800 million providing us with scale and capabilities in key growth areas. So we finished the year much like we started with strong broad-based growth underpinned by very good profitability and cash flows. With those summary comments, let me now turn to some of the details starting with new bookings. New bookings were $8.8 billion for the quarter. Consulting bookings were $4.1 billion reflecting a book-a-bill of 1.0. Outsourcing bookings were $4.7 billion with a book-to-bill of 1.3. We're very pleased with the volume of bookings for the quarter, especially considering the FX headwind which we estimate to be 13% in the quarter. The overall demand for our services remains robust, with the strongest quarterly bookings growth coming from operations, products, Europe and the growth markets. Across the board, digital-related services continued to be an important driver of our new bookings. We also had 10 clients with bookings in excess of $100 million, bringing the total for the year to 43, which again signifies the unique relationship that we have with many of the largest companies in the world. Turning to revenues, net revenues for the quarter were $7.9 billion, a 1% increase in USD and 12% in local currency reflecting a negative 10% foreign exchange impact consistent with the assumption we provided in June. Consulting revenues for the quarter were $4.2 billion, up 4% in USD and 14% in local currency. Outsourcing revenues were $3.7 billion, down 1% in USD and an increase of 9% in local currency. The overriding theme in quarter four continued to be broad-based and balanced growth across our operating groups and geographic regions. We are more pleased with revenue performance across all of our business dimensions with the dominant drivers continuing to be strong double-digit growth in digital-related services and operations. But we were also very pleased with our growth in application services and the combined growth for strategy and consulting. Taking a closer look at our operating groups, Communications, Media & Technology led all operating groups with 16% growth, the fifth consecutive quarter of double-digit growth. Broad-based growth continued with double-digit growth across all three industries and in all three geographic areas. Financial Services delivered their strongest growth of the year at 14% fueled by double-digit growth in all three industries, and in both Europe and the growth markets. H&PS continued their trend of double-digit growth posting 13% in the quarter. The strength of our H&PS business continues to be very strong growth in both health and public service in North America. Products grew by 10%, led by consumer goods and services, life sciences and automotive, with very strong growth in Europe and the growth markets. And finally, resources continue to deliver very consistent growth of 6% in the quarter with positive growth in all three geographic regions and in all industries except energy. Moving down the income statement, gross margin for the quarter was 31.7% consistent with the same period last year. The marketing expense for the quarter was 11.7% of net revenues, down 10 basis points. General and administrative expense was 6.2% of net revenues, up 10 basis points. Operating income was $1.1 billion in the fourth quarter reflecting a 13.9% operating margin consistent with quarter four last year. Our effective tax rate for the quarter was 27.1% compared with an effective tax rate of 30.1% in the fourth quarter of last year. Net income was $788 million for the fourth quarter compared with net income of $760 million for the same quarter last year. Diluted earnings per share were $1.15 compared with EPS of $1.08 in the fourth quarter of last year. This reflects a 6% year-over-year increase. Turning to DSOs, our days services outstanding continued to be industry leading. There were 37 days consistent with last quarter. Our free cash flow for the quarter was $1.4 billion resulting from cash generated by operating activities of $1.5 billion, net of property and equipment additions of $148 million. Moving to our level of cash, our cash balance at August 31st was $4.4 billion compared with $4.9 billion at August 31st last year, down roughly $500 million as we returned $3.8 billion to shareholders through repurchases and dividends in fiscal ‘15. Turning to some other key operational metrics, we continue to attract significant talent, hiring more than 100,000 people in fiscal '15, ending the year with a global headcount of over 358,000 people. We now have approximately 257,000 people in our global delivery network. In quarter four, our utilization was 90%, consistent with last quarter. Attrition which excludes involuntary terminations was 14% compared to 15% in quarter three and in the same period last year. With regards to our ongoing objective to return cash to shareholders, in the fourth quarter, we repurchased or redeemed 6.6 million shares for $664 million at an average price of $100.03 per share. For the full year, we repurchased or redeemed 27.4 million shares for approximately $2.5 billion at an average price of $89.52 per share. This week, our Board of Directors approved $5 billion of additional share repurchase authority bringing the total to $7.6 billion. And as Pierre mentioned, our Board of Directors declared a semiannual cash dividend of $1.10 per share. This dividend will be paid on November 13 and represents an $0.08 per share or 8% increase over the previous semiannual dividend we declared in March. So before I turn it back over to Pierre, let me just briefly summarize where we landed for the full year across the key elements of our original business outlook provided last September. I'm pleased to say that we successfully managed our business and delivered on every metric in our original outlook. New bookings for the full year landed at $34.4 billion, which was just above the upper end of our guided range when adjusted for the actual FX impact. Net revenues grew 11% for the year in local currency, above the top end of the guided range that we provided at the beginning of the year. Operating margin on an adjusted basis was 14.5% reflecting 20 basis points of expansion, the midpoint of our guided range. Diluted earnings per share on an adjusted basis were $4.82, which was above the upper end of our original guided range when adjusted for the actual FX impact. Free cash flow was $3.7 billion, in the middle of our original guided range even with a much higher FX headwind. And finally, we returned $3.8 billion of cash to shareholders right at our initial objective through $1.4 billion in dividends and $2.5 billion in share repurchases. In addition, we reduced our weighted average diluted shares outstanding by 2%. So, again, we had an extremely strong year by any measure. We're very pleased with the progress we've made in executing our growth strategy and especially as it relates to the accelerated rotation of our business to digital-related services. Overall, our results demonstrate the durability of our growth, profitability and cash flows and our ability to manage our business to deliver value for all of our stakeholders. With that, let me turn it back to Pierre.

Thank you, David. Our excellent results for the year reflect the successful execution of our strategy across the different dimensions of our business. We are making focused investments in high growth areas including more than $2.5 billion in acquisitions over the last three years. These investments are all about building new capabilities to further differentiate Accenture in the marketplace. At the same time, we have aligned our organization around five businesses; Accenture Strategy, Accenture Consulting, Accenture Digital, Accenture Technology and Accenture Operations, all highly competitive in their own rights and synergistic in delivering end-to-end outcomes for clients. In particular, the new innovative services we have created in Accenture Digital and Accenture Operations have contributed significantly to our growth. In Accenture Digital, we are working with our clients to help them create competitive advantage and tap into new sources of value. In Accenture Analytics, we are using our new Accenture Insights Platform to help Thames Water in the UK embrace the Internet of Things to transform decision-making. Our new cloud-based solution monitors and analyses data in real-time from more than 20,000 centers and with data visualization tools, managers can proactively respond to risks on the network. And we are helping one of the largest banks in the Euro zone implement a major digital transformation. We are combining our design capabilities from Fjord which we acquired two years ago with our analytics capabilities to create a new and seamless multichannel customer experience, while also driving significant operating efficiencies. In Accenture Operations, we have strong momentum across our infrastructure, business processes, security and cloud services. In procurement, we continue to lead the market building on the capabilities we acquired with Procurian. Let me share two examples. We are helping Glencore Queensland, a division of the global mining company, to enhance its competitiveness. With our category management expertise and cloud-based sourcing, we expect to achieve total cost savings of more than $300 million. And we are helping TNT, the express delivery company to reduce cost and focus on its core business. Leveraging our procurement and finance and accounting capabilities, we expect to drive annual cost savings of more than $100 million. And when you look across our own five businesses, only Accenture has the full range of capabilities to integrate and deliver end-to-end services in an industry context to drive transformation and mission-critical outcomes for our clients. A great example is the work we are doing with Mondelez, the global food and beverage company to drive growth, increase profitability and reduce costs. We started this program with Accenture Strategy and our zero-based budgeting approach and are now leveraging our business process capabilities in Accenture Operations. We expect to deliver total savings of more than $1 billion over three years. And we continue to invest to further differentiate our capabilities, taking the first-mover position and investing ahead of the curve in fast-growing areas such as cloud and security. Last week, we announced the acquisition of Cloud Sherpas, a global leader in cloud advisory and technology services specializing in Salesforce, ServiceNow and Google. The addition of 1,100 professionals from Cloud Sherpas will further strengthen our position as the leading enterprise cloud services provider. And last month, we acquired FusionX, a leader in the emerging field of cyber security. FusionX’s elite team of cyber security experts works at the C-Suite level to help clients test security and see their vulnerabilities through actual replica attacks. This acquisition brings to Accenture the critical ability to help our clients assess and respond to sophisticated cyber-attacks. Turning to the geographic dimension of our business, I am delighted that in fiscal year ‘15 we delivered double-digit revenue growth in local currency in each of our three geographic regions and we achieved these results despite the global economic environment that remains sluggish and the geopolitical environment that is quite concerning. In North America, we delivered 13% revenue growth for the year in the United States where we have now delivered double digit growth in four of the last five years. We have gained significant market share in the US and are now positioned as the market leader. In Europe, we grew revenues 10% in local currency for the year driven primarily by Germany, the United Kingdom, Spain, the Netherlands, Italy and France, and in growth markets, we delivered revenue growth of 11% in local currency for the year, driven primarily by strong double-digit growth in both Japan and Brazil with high single-digit growth in Australia. So, in closing, we created very strong momentum in our business in fiscal year ‘15 by leveraging the investments we’ve made and by accelerating our rotation to new high growth areas. And I am especially pleased with our performance in digital-related services which grew approximately 35% for the year to more than $7 billion. With the relevant and differentiated capabilities we have built, along with the continued disciplined management of our business, I am confident in our ability to continue to deliver sustainable profitable growth. With that, I will turn the call over to David to provide our business outlook for fiscal year ‘16. David?

Thank you, Pierre. Let me now turn to our business outlook. Starting with the first quarter of fiscal ’16, we expect revenues to be in the range of $7.7 billion to $7.95 billion. This assumes the impact of FX will be a negative 8.5% compared to the first quarter of fiscal '15 and reflects an estimated 6% to 9% growth in local currency. For the full fiscal year '16, 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 negative 4% compared to fiscal ’15. For the full fiscal '16, we expect our net revenues to be in the range of 5% to 8% growth in local currency over fiscal ’15. For operating margin, we expect the fiscal year '16 to be 14.6% to 14.8%, a 10 to 30 basis point expansion over adjusted fiscal '15 results. We expect our annual effective tax rate to be in the range of 25% to 26%. For earnings per share, we expect full year diluted earnings per share for fiscal '16 to be in the range of $5.09 to $5.24 or 6% to 9% growth over adjusted fiscal ’15 results. Turning to cash flow, for the full fiscal '16, we expect operating cash flow to be in the range of $4.1 billion to $4.4 billion, property and equipment additions to be approximately $500 million and free cash flow to be in the range of $3.6 billion to $3.9 billion. We expect to return at least $4 billion through dividends and share repurchases and also expect to reduce the weighted average diluted shares outstanding by just under 2% as we remain committed to returning a substantial portion of our cash to shareholders. Finally, you may have noticed that I did not provide new bookings guidance for fiscal 2016. Each year we evaluate our guidance approach to ensure that we're providing appropriate visibility to our expected results. Starting this year we will no longer provide new bookings guidance as we believe that it is not the best indicator of future revenue performance and has created confusion in recent years. We will continue to report actual new bookings results each quarter. With that, let's open it up so that we can take your questions. KC?

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. Greg, would you provide instructions for those in the call please?

Thanks. Good morning. Good revenue growth yet again, just wanted to ask I guess just in the hindsight here, probably you guys did 11% revenue growth in fiscal '15, I think your initial expectations was 4% to 7%. So what drove the upside versus initial expectations, just trying to gauge what was strong versus conservatism and sort of how that may reflect in this year's guidance?

Yeah, I mean I think just reflecting on ’15 and, Pierre, I’m sure we will have some reflections as well. I mean the first thing I would start off with is the fact that while we were confident that we were well-positioned for a very attractive market in the digital space, frankly, it’s hard and I'm sure you are going to appreciate this, Tien-Tsin. It would have been hard to bank on and predict 35% growth in our digital-related services business. So that clearly was part of the driver. I think secondly, while we also felt very confident in our operations business, which is truly distinctive in the marketplace, no doubt about that, the growth rate was higher. We knew it would be strong, but it came in even stronger than we expected. When I reflect on the operating groups and you may remember and I won’t recount what I’ve said or recap what I’ve said when we started the year, but I had laid out a view of how we thought the operating groups would emerge. I mean, clearly when you look at CMT’s growth for the year, as proud as we are of that growth, it frankly would have been tough to predict that level of growth, double-digit growth in all industries and in all three geographic markets. I mean, that is kind of a trifecta of stars aligning. On the other end of the spectrum, not to go through every operating group, we were comfortable with our turn to growth in resources but yet there were still some risk as we highlighted and at the end of the day, congratulations to our resources team again that they’ve reconnected with growth and sustained very solid growth. And then I think across the patch, when we talk about consulting in our traditional type of work way, which in our new way of looking at the business includes strategy, consulting and part of application services related to application development within app services, that part of our business was very strong in ’15 and exceeded our expectations.

Yeah, I mean, not much to add. I think it clearly, I mean, to summarize, we’re overachieving in three areas mainly; CMT, digital business and operations. When it comes to operations, significantly more than we expected.

Now that’s helpful. I guess as my follow-up, I’ll ask just on this year’s guidance. Just how much is coming from acquisitions? I know, you have got Navitaire coming up as well and can you give us any sort of range on what digital growth might look like in ’16? Thank you.

Yes. Just working backwards, Tien-Tsin, I’ll give you a view on digital growth as well as our dimensional growth. I’m going to give that view at I-Day, as we’re still working through our view on that. And just to your other question, I’ll start with ’15. Our inorganic contribution I signaled last quarter was in the range of 1% to 1.5%. Our actual inorganic came in roughly at the midpoint of that range. The point being that when you look at our 11% growth for the year, the organic growth was obviously substantial. As we look forward to ’16, we are very proud of the success that we’ve had in the market with our acquisition activity in the last two quarters in particular. We also have four acquisitions, Pierre mentioned Cloud Sherpas, which had been announced, but not yet closed, but if you take what we closed and the four that have been announced, not yet closed, then we would estimate that our inorganic would be, let’s say, approaching the range, in the range of about 2% and of course that can change depending on the timing of when these four deals, Cloud Sherpas, in particular, ultimately gets closed. But we would be in that range. So, would be a click up.

Hi, thanks.

Hi, good morning, Ashwin.

Good morning. How are you? My first question is regarding the acquisitions you've made over the past few years, which we recently discussed. Is there a downside to these acquisitions? Can you share insights on the growth rate of your traditional businesses? How are you affected by the ERP slowdown and the challenges associated with transitioning to cloud services? While your digital revenues are growing rapidly and you're managing this transition well, it seems this is impacting your overall growth rate.

Ashwin, I want to highlight two key points before Pierre adds some context. Firstly, for the year we just completed, our organic growth was around 9.5%, indicating that our organic business was performing exceptionally well in 2015. This showcases the effectiveness of our growth strategy and Accenture's shift towards focusing on our five key businesses, utilizing the unique channels we have through our operating groups in our major markets. So, it's important to note that our organic growth is strong. Regarding ERP, we've always mentioned that it goes through cycles, but it's still a compelling business. In 2015, our ERP business stabilized and even experienced slight growth. Though it has decreased slightly as a proportion of our total revenue due to significant growth in our non-ERP segments, the ERP story remains positive. I’ll now hand it over to Pierre.

We want to emphasize our acquisition strategy, which is driven by three main reasons. First, we aim to accelerate our access to essential capabilities in areas we categorize as new at Accenture, including digital services, cloud services, security services, and advanced technologies like cognitive computing, automation, and artificial intelligence. The second reason is to gain deep industry expertise, particularly in consulting, which is why we acquired companies like Axia and Javelin, as well as iTRAK for their specialized knowledge in upstream energy and retail. The third reason is to grow more rapidly and secure a leadership position in the marketplace, which we define as being number one. Examples include Procurian and Cloud Sherpas, which help us gain scale and create a significant gap between Accenture and our competitors. These are the three reasons driving our acquisitions, and we are also focusing on organic growth alongside these acquisitions. Procurian is a prime example; since we acquired them, we have become the number one provider in procurement services, scaling quickly, and the organic growth in our procurement services now surpasses our initial business growth.

Absolutely. Now I understand it and we’re actually fairly consistent with what we’ve predicting recently. The second question is just I want to ask about free cash flow growth in terms of the guidance looking at the lower end is negative, the upper end is 5% at the upper end, which is a tad slower than an EPS growth. And can you kind of go through the puts and takes with regards to free cash flow growth going forward? How you think about it? Clearly, it’s at an impressive absolute level, but I just want to understand how you’re thinking of sort of the cancellation from revenues to profits to cash?

I would encourage everyone to consider the absolute amount, which I believe is outstanding. Our operating cash flow or free cash flow surpasses net income, which is a standard for any company and indicates strong cash flow. We’re at about 1.1 in free cash flow to net income. The absolute figure is very strong. As we've mentioned before, there are many factors affecting our cash flow each year. For example, we've accounted for the possibility of a slight increase in Days Sales Outstanding (DSOs), although that's not our goal. Additionally, we have planned for increased capital expenditures, which contributes to this growth, and there are variations in timing, such as tax cash payments, which can vary significantly from year to year. Therefore, while there are fluctuations, it's important to focus on the absolute cash flow, which exceeds net income and signifies a strong cash-generating company.

Thanks guys. It’s interesting, we heard some commentary around Brazil and some of the emerging markets growing well. I guess when we think of your guidance and obviously, there is a deceleration partly due to just tougher comps, but I imagine some conservatism as well but I guess on top of that, I mean, how much is your expectation for Brazil or China or maybe even Russia or some of the other emerging markets that we’ve seen slower trends and having an impact on your model? I guess, I’m not quite sure we’ve heard contribution to your revenue from China or Brazil to be honest.

Yes, so, if you look at it indeed, we had a good year in some of these markets, overall growth markets, I mean, double-digit growth if you look at all the growth markets. But again, you will see in these growth markets some of mature market names, I’m saying about Japan and Australia. Now, indeed, we had a very good performance of Brazil last year on back of some very good program in Accenture operations and our business as well in launching innovative services, especially around mortgage as a service on back of a small acquisition we made few years ago called Avere and our digital rotation as well which is happening in Brazil likewise it’s happening in other places. That being said, we’re looking at the market as you do. We understand that the global economic conditions in Brazil are deteriorating at some pace and it has been factored in our plan.

Okay. Have you ever given any disclosure on how much of a contribution Brazil or China might be to your business?

Yeah, we have given that disclosure. I guess, we showed the revenue number for Brazil.

I mean, Brazil is about a $1 billion. It’s about a $1 billion for Accenture.

And China?

It’s not something that will be always significant. And in China, we are around half a billion.

Okay. That’s helpful guys. And just last follow-up question on the digital side, again, growth of 35% obviously very impressive.

Both trending to –

Yeah, China, we are about – we are less – we are about in the range of $300 million in that range, so about 1% of Accenture.

Okay, very helpful. Just one quick follow-up on the digital side again. The 35% growth rate, again very impressive. It seems like there is enough demand out there, for even of a larger base that kind of trend to continue. I know you said to Tien-Tsin before that, weight for IA Day, but I mean, I think it seems like could it be fair to assume that you can have at least something similar or very, very strong double-digit growth once again this year?

I think that – we think in terms of continued strong double-digit growth, 35% is a big number. And for planning purposes, we considered the scale of the business, but 35% is a big number and I don’t know that we would assume that for planning purposes, not that we wouldn’t strive forward.

We got plan for double-digits.

Hi, thank you very much. I wanted to ask about pricing. Recently Cognizant called out, what was normally a fairly deliberate and conservative company that pricing pressure has increased in part of their business in a while. I understand that there isn’t perfect overlap in competitive areas between yourself and an Indian-based player Cognizant. I did want to hear what you’re seeing in the pricing environment across the breadth of the business that’s particularly in the allocation maintenance and application development world specifically?

Yeah, I would say that, you may remember, it was in the second – it was our second quarter’s call, I mentioned that we were pleased with the progress that we have made in pricing relative to where we were in the previous year. And I would say that relative to those comments, our pricing has remained very stable and so we’ve – I would characterize the environment – it’s tough to paint with a broad brush, because it really is different depending on which part of our business that you look at. But certainly overall, the environment continues to be competitive. If I had to give an overall characterization, I would say stable at the levels that we indicated that in the second quarter. You know, if you look back, I would – you asked specifically about application services that continues to be a very competitive market, but our pricing is stable. We see other parts of our business where we see some pricing power and when I say that I think about Accenture strategy and Accenture consulting.

Okay, fair enough. And my follow-up question if I could is, your Global Delivery Network continues to tick-up, which I think is part of the reason why you’re able to move your margins, almost 72% of employment basis in the global network now. Is there a natural resistance point that will add some level? Can you – if we look out over the next couple of years, can that continue to move up where you move say over 80% of employment basis in the GDN? If you can just talk about any natural resistance point, particularly as you think about digital forming a greater percent of revenue, which I would think would be more local headcount? Would like to hear your characterization. Thanks very much.

We don’t think in terms of a natural resistance point. I mean, we think that we’ve got a lot of flexibility for how our Global Delivery Network can continue to evolve. But we certainly don’t think in terms of any natural resistance point. We drive it as the market evolves and as I said, we’ve got flexibility still in front of us.

Yes, and when you look from a skill standpoint, I mean, you’re right to mention that part of the work we are doing in digital-related services could be onshore. However, we are probably the largest – one of the largest application, perhaps enterprise apps developer in the world. All these developments are being made via our Global Delivery Network and it’s definitely part of digital related services. I am thinking about a significant part of our business in analytics as well being done with our resources, especially in India and other places. When I think about strong innovations in terms of automation, robotics, cognitive computing and artificial intelligence, they are coming a lot from the Philippines and from India as well. So I guess, it would be a bit simplistic to see our GDN as a kind of low-cost, low-value kind of capability. It is a right cost, very high value workforce.

Good morning, Ed. Good morning. Congrats on the quarter. I was curious if how much of a drag that the acquisitions have become to your margin and is it this rapid growth in the GDN that was just mentioned, is that providing adequate offset?

First of all, Ed, I want to emphasize that we are quite satisfied with the overall performance of our acquisition portfolio in terms of revenue, profitability, and cash flow, which we monitor closely. We review this not only internally but also with our Board each quarter. We believe we have stringent financial thresholds for our transactions. That said, it's not uncommon for acquisitions to be dilutive in the first year or two. One of our key benchmarks is the speed at which a deal becomes neutral and then accretive, but it's certainly possible for it to be dilutive initially. Additionally, while many companies in our sector often adjust for specific acquisition-related costs, such as amortization of intangibles and performance retention payments at the time of closure, we have opted not to do that. We report our margins comprehensively. So far, our commitment to margin expansion aligns with our philosophy of absorbing these costs as investments while driving the business forward. This is just one aspect of our investment strategy. Notably, our profit model reflects significant efficiency improvements across our business, which helps us manage the investments, including acquisitions, and this is an important narrative to share, so I appreciate you asking the question.

My other question is on clarification on pricing. When you talk about stable pricing, sort of what does that mean? I mean, we hear that clients are more focused on reducing total cost of ownership. So you and your competitors may be able to sustain margin, but it’s your – you’re giving back some volume. Help us understand better what you mean by pricing? Thanks.

To clarify for everyone, when we discuss pricing, we're specifically referring to the profit or margin percentage on the work we deliver. This is the context in which I state that pricing is stable. For instance, in application services, our margins on contracted work are stable. I've mentioned other areas where we possess some pricing power, like strategy and consulting. This is also related to margin, and I want to emphasize that in that segment of our business, we are also pleased with the progression of average daily rates.

Hi, guys. Good morning. First I guess, I will ask directly the question I think many are wondering, which is, what is it are you seeing in the numbers that’s causing the implied kind of sharp quarter-on-quarter deceleration in the guide for Q1?

Yeah, so if you look at our guides for quarter one, the range is 6% to 9% in local currency growth. I mean, when I look at quarter one or the full year, maybe, Lisa, if you will, I’ll just – let me just expand my comments a little bit. I mean, when you look at our guidance, you first of all have to understand what is our assumption on market growth. And we assume that the market will continue to grow plus or minus in the 4% range. And so when you look at our guidance for the year, certainly if you look at our guidance for quarter one, the same would apply across that range, but certainly at the upper end of that range, it reflects taking significant market share, continuing to take significant market share, which is our strategic objective. The other thing that you have to consider goes back to some of the discussion that Pierre had I believe with Darrin on the growth markets and the risk profile. But also I think, when we look at the macro environment in general, relative to where we were 90 days ago, I would say, relative to where we were at this time last year, the volatility and risk in the macro environment has clicked up a notch or two, and so that’s a factor then. The other thing that we think about when we look at our guidance is that it’s as important if not more important to look at the absolute dollars as it is the percentage, whether it be the first quarter or the full year. And if you just look at the full year, before you adjust for the FX headwind, just taking that out, look at the underlying growth, at the upper end of our range, we will be adding about $2.5 billion of revenue, excluding the impact of FX in fiscal 2016, which is a pretty health number. And so we work hard to drive to the upper end of the range, although the range reflects what we think are the range of possibilities. And as it relates to the full year, we’re early in the year and as we did last year, we’ll adjust as we go. That was more of an answer than your question, but it gave me an opportunity to share some of those thoughts.

Hi. Thank you. Good morning.

Hi. Good morning, Sara.

Do you think that your visibility is changing at all, given that a greater portion of growth is coming from digital?

I would say that to the extent that digital has a strong consulting concentration and if you look at the, let’s say, the average duration of a consulting contract versus an outsourcing contract, it would be true to say that the duration is shorter for consulting than it is for outsourcing. So in that sense, it does give you a different backlog kind of profile going forward. We’re very pleased with how our strategy in consulting and the development of new technology that we report within application services, that has been a great story for us, but it does change the dynamic as you’re alluding to.

Yeah. Good morning. Just speaking of headcount growth, I think it was up 17% year-over-year, that’s the highest I can remember in a long time, can you just talk about how that translates into revenue? I would have guessed it would have pushed a little bit higher guidance growth rate for the constant currency revenue growth for fiscal year ’16?

We were very pleased with our recruiting efforts in the fourth quarter. We continue to attract strong talent in the marketplace, leading to successful recruiting results. The fourth quarter is when we typically onboard our campus hires, which is reflected in our numbers. We manage supply and demand carefully. It's important to note where we start the year, and we will need to manage our headcount as we progress. We will monitor attrition and revenue growth during the first half of the year and adjust our headcount as necessary.

Great. We have time for one more question and then Pierre will wrap up the call.

Good morning and thank you for the question. I noticed that the European or EMEA constant currency growth rate accelerated nicely this quarter. It's been about a year and a half of growth in Europe, and I'm curious if you could discuss the current environment there and the main factors contributing to that acceleration, so we can understand how sustainable this growth might be moving forward.

Yes. Sure. Thank you. And by the way, Jo Deblaere who is leading our European business is in the room and he could be more pleased with your comments on Europe. And yes, I mean, we’re pleased with where we are because we’ve seen the growth and of course, when you understand the overall economic environment in Europe, it’s much different from the one for instance you have in the US. So it’s more about us than about the market of course. And I would call probably the same trend. It’s fascinating to see that the digital rotation we’ve seen in Europe is as strong, even slightly stronger than the one we could see in the US. It appears that our target clients, mainly the premium brand in the G2000 we’re serving in Europe are really accelerating their investments in terms of digital rotation. Second, we had some very significant transactions, leveraging Accenture operations with our business process services, I’m thinking about, I mean the Finance and Accounting, the HR, the procurement as well and it’s been a significant source of growth and overall, the consulting is back, probably driven as well with the digital related services. So for Europe, again, the clients we’re serving, more than the GUs, are reinvesting. We’re always nice on rationalization, driving good growth for Accenture operations and the other eye on growth and digital, which is driving more business for Accenture Digital, Accenture Strategy and Accenture Consulting and of course the leadership of Jo Deblaere.

Great. And maybe just for a follow-up, I know the deal hasn’t closed yet, but I think Cloud Sherpas was a great pick up. We know them as a leading cloud broker and a substantial salesforce.com partner. Maybe if you could, to the extent you can, talk about the rationale behind that deal and where some of the leverage across your platform might come from and any kind of overlap with their current brokerage business?

Yes. Sure. I mean, two main reasons. First, and you’ve seen that in the terminal, which has been used by Paul Daugherty, our Chief Technology Officer, we’re taking a cloud first approach. So we are strongly believers that indeed now and even more moving forward, this cloud first agenda will be quite prevalent for our clients and we want to preempt to be ahead of the curve or to embrace whatever you’re going to call it, this new cloud first environment and so to be a prominent provider in the add to service, software and solution as a service environment. So second, when we have defined this position for Accenture, the name of the game for us was how to scale more rapidly to take the leadership position, especially around the salesforce.com solution and Cloud Sherpas was a very relevant opportunity for us to scale rapidly the good capabilities we have as we speak, we are the leader in providing services for salesforce.com. We are already the leader and we believe that through this acquisition, they have excellent people, a significant number of these people being certified, which is even more important, we are scaling faster and are taking the leadership in this market, which we believe is going to be promising in the coming years.

Thank you for joining us today for Accenture’s Fourth Quarter Fiscal 2015 Earnings Conference Call. If you have any additional questions, please feel free to reach out to our investor relations team. We look forward to our next call. Goodbye.