Q4 2022 Accenture PLC Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Adventures fourth quarter fiscal 2022 earnings call at.
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I would now like to turn the conference over to our host managing director head of Investor Relations.
MS. Angie Park. Please go ahead.
Thank you operator, and thanks, everyone for joining us today on our fourth quarter and full fiscal 2022 earnings announcement as the operator, just mentioned I'm Angie Park, managing director head of Investor Relations on today's call you will hear from Julie Sweet, our chair and Chief Executive Officer, and KC Mcclure, 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 Julie will begin with an overview of our results KC 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 full fiscal year.
Julie will then provide a brief update on our market positioning before KC provides our business outlook for the first quarter and full fiscal year 2023. We will then take your questions before Julie provides a wrap up at the end of the call.
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 uncertain.
<unk> 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 at Accenture Dot com.
As always Accenture assumes no obligation to update the information presented on this conference call now, let me turn the call over to Julie.
Thank you Angie and everyone joining us today and thank you to our 721000 people around the globe for delivering a truly extraordinary year.
We measure our success by both our financial results and the broader 360 degree value we create for all our stakeholders our clients people shareholders partners and communities.
Strong financial results allow us to deliver more 360 degree value.
Let me share a few highlights of this extraordinary year in FY 'twenty, two we delivered record bookings of $72 billion as our clients continue to execute compressed transformations, we had 100 clients with quarterly bookings greater than $100 million compared to <unk>.
72 last fiscal year.
We delivered revenues of $62 billion, representing a record 26% growth in local currency, adding $11 billion in revenue for the year, we continued to take significant market share growing more than two times the market.
Our financial results reflect our commitment to creating value for our clients every day, which is why they are turning to us as their trusted partner across the enterprise. We now have 267 diamond clients, our largest client relationships compared to 229 last fiscal year.
We expanded operating margin by 10 basis points and had EPS growth of 22% over adjusted FY 'twenty, one EPS, demonstrating our ability to grow profitably and at scale.
We achieved this profitable growth, while continuing to invest significantly in our business and people with $3 4 billion deployed across 38 acquisitions that are well balanced across markets services and strategic priorities.
One $1 billion invested in R&D asset platforms, and industry solutions, including growing our portfolio of patents and pending patents to more than 8300 <unk>.
And $1 $1 billion invested in the training and development of our people to grow the skills needed to serve our clients.
We continue to offer an employee value proposition that includes providing vibrant career paths and opportunities for our people with approximately 157000 promotions and over 40 million training hours, while expanding our workforce by almost 100000 and achieving 47% women as we can.
Continue our progress towards gender parity by 2025.
We believe our unwavering commitment to diversity broadly defined and inclusion is an essential element of our ability to deliver market, leading financial results because of our diversity and inclusiveness makes us smarter more innovative and more attractive to top talent.
We achieved over 85% renewable electricity powering our offices and centers around the world on our way to 100% by 2023.
We prioritize creating value at around the world in the communities, where we work and live both through investments and job creation and through our direct support of meaningful local initiatives, including our apprenticeship programs in the U S UK, Switzerland in Latin America, and our growing partnership with youth youth business International which will help in.
<unk> estimated 240000 young entrepreneurs ages 18 to 35 build skills and success in a digital future on top of the 370000 young entrepreneurs already supported through this partnership in many different communities throughout the world.
This year, we are proud to achieved our highest brand value and rank to date on brands. These prestigious top 100, most valuable global brands list, increasing 28% to over $82 billion and ranking number 26.
Over to you KC.
Thank you Julie and thanks to all of you for joining us on today's call.
We were very pleased with our results in the fourth quarter, which completes another outstanding year for Accenture.
Once again, our results continue to provide strong validation of our leadership position in the marketplace. The relevance of our services to our clients and our ability to consistently deliver on our shareholder value proposition, including both our financial results and creating 360 degree value for all our stakeholders.
So let me begin by summarizing a few highlights from the quarter across our three financial imperatives.
Revenue grew 22, 4% in local currency driven by double digit growth across all markets services and industries. We once again extended our leadership position with growth estimated to be more than two times, the market, which refers to our basket of publicly traded companies.
Operating margin was 14, 7% an increase of 10 basis points for the quarter.
We continue to drive margin expansion, while making significant investments in our people and our business.
We delivered very strong EPS of $2 60.
Which represents 18% growth compared to EPS last year.
And finally, we delivered free cash flow of $3 6 billion.
Driven by Superior DSO management.
Now, let me turn to some of the details.
New bookings were $18 4 billion for the quarter, our second highest ever with a book to Bill of one point to <unk>.
Consulting bookings were $8 4 billion with a book to Bill of one.
Outsourcing bookings of $9 9 billion were a record with a book to Bill of one four.
We were very pleased with our strong bookings this quarter, which reflects 22% growth in U S dollars and 31% growth in local currency, including 26 clients with bookings over $100 million in the quarter.
Turning now to revenues revenues for the quarter were $15 4 billion, a 15% increase in U S dollars and 22, 4% in local currency.
Consulting revenues for the quarter were $8 3 billion up 14% in U S dollars and 22% in local currency.
Outsourcing revenues were $7 1 billion up 16% in U S dollars and 23% in local currency.
Taking a closer look at our ferrous dimensions technology services grew very strong double digit operations grew strong double digits and consult strategy and consulting grew double digits.
Turning to our geographic markets in North America revenue growth was 18% in local currency driven by double digit growth in public service software and platforms and consumer goods retail and travel services.
In Europe revenues grew 26% in local currency led by double digit growth in industrial banking and capital markets and consumer goods retail and travel services.
Looking closer at the countries Europe was driven by double digit growth in Germany, the UK, Italy and France.
And gross markets, we delivered 26% revenue growth in local currency driven by double digit growth in banking and capital markets consumer goods retail and travel services and public service.
From a country perspective growth markets was led by double digit growth in Japan, and Australia move.
Moving down the income statement.
Gross margin for the quarter was 32, 1% compared with 33, 3% for the same period last year.
Sales and marketing expense for the quarter was 10, 2% compared with 11, 3% for the fourth quarter last year.
General and administrative expense was seven 1% compared to seven 4% for the same quarter last year.
Operating income was $2 $3 billion in the fourth quarter, reflecting a 14, 7% operating margin up 10 basis points compared with Q4 last year.
Our effective tax rate for the quarter was 24, 6% compared with an effective tax rate of 25% for the fourth quarter last year.
Diluted earnings per share were $2 60.
Compared with EPS of $2 20.
In the fourth quarter last year.
Days service outstanding were 43 days compared to 44 days last quarter and 38 days in the fourth quarter of last year.
Free cash flow for the quarter was $3 6 billion, resulting from cash generated by operating activities of $3 8 billion net of property and equipment additions of $177 million.
Our cash balance at August 31st was $7 9 billion compared with $8 2 billion at August 31 last year.
With regards to our ongoing objective to return cash to shareholders in the fourth quarter, we repurchased or redeemed two 1 million shares for $605 million at an average price of $2 293.
And 23 cents per share.
Also in August we paid our fourth quarterly cash dividend of 97 per share for a total of $614 million.
And our board of directors declared a quarterly cash dividend of $1 12 per share to be paid on November 15th.
15% increase over last year and approved $3 billion of additional share repurchase authority.
Now I would like to take a moment to summarize our outstanding year, we were extremely pleased with our performance in fiscal year 'twenty two.
Greatly exceeding almost all aspects of our original outlook that we provided last September .
We delivered seven one.
$71 $7 billion in new bookings, reflecting 21% growth in U S dollars, hitting 100 clients with quarterly bookings of $100 million, which positions us well as we begin FY 'twenty three.
We added significant scale with a record 11 billion in incremental revenue.
Most double what we added in fiscal 'twenty one.
Revenue of $61 6 billion for the year reflects growth of 26% in local currency.
Operating margin of 15, 2% reflects a 10 basis point expansion over FY 'twenty one.
We were extremely pleased that we were able to deliver within our original guided range, particularly with the continued significant investment in our business and people, including higher wages.
Earnings per share were $10.71, reflecting 22% growth over adjusted FY 'twenty, one EPS, which is our highest growth in over a decade.
Reinforcing our ability to grow at scale profitably.
As a reminder, we adjusted earnings last year to exclude gains on investment.
Free cash flow of $8 8 billion was significantly above our original guided range, reflecting a very strong free cash flow to net income ratio of 1.3 and.
And with regards to our ongoing objective to return cash to shareholders. We exceeded our original guidance for capital allocation by returning $6 6 billion of cash to shareholders, while investing approximately $3 4 billion across 38 acquisitions.
In addition to these excellent financial results, let me turn to the 360 degree value we are creating for all our stakeholders.
Through our partnership with save the children, we are preparing young people for a more sustainable and inclusive future by scaling an estimated 70000 people to drive social and environmental change.
For more information on the 360 degree value we are creating please go to the Accenture 360 degree value reporting experience, which reflects new information each quarter.
So again FY 'twenty, two with a truly extraordinary year and we are now focused on delivering in fiscal 'twenty three.
And now let me turn it back to Julian Thank.
Thank you Casey.
We succeed by being close to our clients understanding and anticipating their needs, helping them from strategy to execution with the best solutions for their businesses, whether for growth cost optimization or both and resilience and it all starts with technology.
With the breadth and depth of our existing capabilities combined with our incredible learning organization, we were able to pivot as necessary positioning us to serve our clients' changing needs and capture new market opportunities all while being laser focused on our own operational excellence.
I will give some color on the demand we are seeing first of all against the backdrop of the current macroeconomic environment, we delivered $18 $4 billion in new bookings in Q4, a year over year increase of 31% in local currency, while industries and markets are being affected differently. There are two <unk>.
Common themes, all strategies lead to technology, particularly cloud data AI and security, which are fundamental to its strong digital core.
Our cloud business is now $26 billion and grew 48% with cloud first being the biggest driver of the growth.
Companies are also seeking to execute compressed transformations. The second theme. These mean bold programs on accelerated timeframes often spanning multiple parts of the enterprise at the same time.
Managed services have become increasingly strategic as companies seek to move faster and leverage our digital platform and talent.
And they are turning to accenture because of our excellence across the enterprise. We are unmatched in terms of breadth and depth of capabilities and industry coverage. We continue to see a growing number of companies embrace the need to harness the five key forces of change that we have identified for the next decade total.
Enterprise reinvention talent sustainability, the metaverse continuum, and the ongoing Tech Revolution, which in turn will fuel our growth.
Let me bring this demand to life first total enterprise reinvention, we are helping our clients transform every part of their business with technology from building a digital core to optimizing operations to achieve agility efficiency and resilience to accelerating their growth agendas.
While it is still early stages, there of leading companies that have begun systematically transforming multiple parts of their enterprise for moving to the cloud and adopting new ways of working to digitizing manufacturing to re imagining shared services to creating entirely new business models.
<unk> one of the world's largest consumer goods companies is an example of a company that is leading in total enterprise reinvention.
Together, we are setting a new industry standard by reinventing technology delivery with cutting edge automation delivering cloud migration at scale, the largest ERP migration to the cloud in the industry and shifting to technology solutions that support their growth strategy. They.
They have changed their business model from a matrix structure to being organized around five distinct business groups. Each business group is fully responsible and accountable for their strategy growth and profit deliberately globally now, we're helping them build a BTB marketplace that will help millions of small retailers in emerging markets grow their business and create with the company.
<unk> shared prosperity, we help launching seven markets in just 12 months implemented a cloud native scalable commerce platform powered by data and advanced analytics and we are managing front end backup back office operations and campaigns delivered in partnership with the Accenture song team.
Because across our industries, we are as relevant to the boardroom to the CFO to the business unit leader to the GM of the factory and we understand the connections across the enterprise. We are uniquely positioned to help our clients as they seek to often simultaneously drive growth efficiency cost reduction and increased resilience.
For example, we are helping Lupin limited a global pharmaceutical company become an intelligent enterprise by enabling its data driven transformation journey.
Our new digital platform will unlock enterprise data to increase efficiencies and decision makers will now have real time visibility into integrated data across 100 countries and 15 manufacturing and research facilities. This consolidated view of global business operations and performance will help the company navigate supply chain disruptions and accelerate.
Product innovation and speed to market, while supporting the Companys mission to provide affordable healthcare to people around the world.
We see continued demand for our industry X capabilities, which are all about digitizing engineering and manufacturing. The next digital frontier industry X revenues grew 38% in FY 'twenty two to total $7 billion.
We're helping Etfs, a French multinational utility company digitize the construction of a nuclear power station that will provide low carbon energy for more than 6 million UK homes as part of a total enterprise reinvention, our industry X team transformed edf's digital construction processes by creating a global disease.
Low factory model on a secure cloud infrastructure driving cost efficiencies.
Construction methods that used to be paper and blueprint base will be digitized and AI will consolidate parts information from millions of pages of supplier guides digital dashboards will provide real time data visibility across all systems and digital twins will help identify areas for automation across power plants, all of which draw.
<unk> safety efficiency and quality, we are leveraging our expertise of nuclear construction and our cutting edge cloud digital and AI capabilities to help ETF deliver on one of the largest capital projects in Europe and accelerate its mission, helping Britain achieved net zero.
And our operation services now a 9 billion dollar business with 19% growth in FY 'twenty two are fundamental to total enterprise reinvention for our clients because they help our clients digitize faster access digital talent and reduce cost.
For example, we are collaborating with one of the world's largest commercial vehicle manufacturers to develop an independent finance operation leveraging our deep functional expertise in finance and accounting with our managed services, we will implement a new platform underpinned by sin ops automation data and analytics will drive and provide real time decision.
<unk>, while digitizing processes to improve efficiency and user experience, all leading to significant cost reductions better decision, making and savings.
And as our clients build their digital core security continues to be more important than ever with over $6 billion in revenue and 45% growth our integrated security capabilities from identity to threat intelligence to managed security services to incident response are critical as our clients respond to increasing risk.
Security landscape widens.
We are working with an Asian multinational conglomerate to deliver a comprehensive managed security services security operations Center and holistic security solution to detect monitor and respond to global security that threat 24 seven.
We will also manage tools to continuously monitor end user devices to detect and respond to cyber threats like ransomware and malware and will perform regular threat hunting activities to detect new cyber hacking techniques. This will provide its business units with timely detection and defense against cyber attacks deliver threat into.
Well for proactive defense reduce false alarms by 90% and minimize emergency incidents to less than 1% of total incidents.
Moving from total enterprise reinvention to the other five forces next talent, our clients look to us to help them access create and unlock the potential of talent. We collaborated with Sky one of Europe's leading media and entertainment companies to modernize its employee experience in human resources operations in the era of <unk>.
Hybrid working.
By migrating to a software as a service multiplatform human capital management solution on the cloud employees will be empowered with anytime anywhere self service solutions and access to real time data and dashboards across all markets in one place.
The solution supports all people management functions from a recruiting and onboarding to performance management and learning as well as compensation benefits and payroll integration employees have the full picture of their work experience at their fingertips, helping them to build their careers and perform at even higher levels.
Now sustainability with $1 billion in revenues in FY 'twenty. Two we continue to believe clients will increasingly need our sustainable ability services in the decade to come we'd be collaborated with Swisscom, Switzerland, Switzerland number one firm for communications and entertainment on our climate strategy to reduce the companys emissions and <unk>.
Help its customers reduce their emissions by 1 million tons of carbon by 2025 equal to 2% of Switzerland total carbon emissions by leveraging technology, such as cloud data AI <unk> and Iot. These.
These technologies will address faster and higher capacity data transmission with remote management and control of connected devices. We're also helping the company explores strategies to incorporate technologies within the emerging scope for classification that can help further reduce carbon emissions from customers, allowing swisscom two positives.
The impact of the planned planet and provide their customers with a larger number of green products and services to choose from.
Moving to the <unk> and the ongoing Tech Revolution, we continue to invest ahead of our clients' needs have had and have more than a decade of experience and leadership in meta versus related capabilities that we expect to onboard over 150000, new joiners, using accenture <unk> and floor and we use our experience and expertise to.
Help our clients as we believe the metaverse continuum provides greater possibilities and the wave of digital transformation and it is still early days for example, you'll helping Tokyo Land Corporation, a Japanese leading leasing construction and retail real estate company leveraged the <unk> to transform the customer.
<unk> experienced through digital twin technology, leveraging computer generated imagery to recreate walk throughs of its condominiums online to greatly improve its in person model Ram tour customers will be able to visualize the property online, including different home equipment options and the company will attract more buyers and increased sales what would you think marketing costs in.
The environmental impact of the construction operation and removal of the model room into the future. We will help create continuous touch points with customers throughout the real estate lifecycle and develop new collaborative digital businesses, such as purchasing furniture and home appliances and ordering renovation services.
And with our continued focus on innovation and the ongoing Tech Revolution, we continued to invest in our business for the future. For example in Q4, we invested in pixel a leader in cutting edge Earth imaging space technology.
Back to you Casey.
Thanks, Julie now, let me turn to our business outlook for the first quarter of fiscal 'twenty. Three we expect revenues to be in the range of $15 two to $15 75 billion. This assumes the impact of FX will be approximately negative eight 5% compared to the first quarter of fiscal 'twenty two and refer.
Flex an estimated 10% to 14% growth in local currency.
For the full fiscal year 'twenty three.
Used upon how the rates have been trending over the last few weeks. We currently assume the impact of FX on our results in U S dollars will be approximately negative 6% compared to fiscal 'twenty two.
For the full fiscal 'twenty three we expect our revenues to be in the range of 8% to 11% growth in local currency over fiscal 'twenty, two which includes an inorganic contribution of about two 5%.
For operating margin, we expect fiscal year 'twenty three to be $15, 3% to 55% a 10 to 30 basis point expansion over fiscal 'twenty to results.
We expect our annual effective tax rate to be in the range of 23% to 25%. This compares to an effective tax rate of 24% in fiscal 'twenty two.
For earnings per share, we expect full year diluted EPS for fiscal 'twenty three to be in the range of $11 nine to $11.41 or.
For 4% to 7% growth over fiscal 'twenty to results.
For the full fiscal 'twenty three we expect operating cash flow to be in the range of eight five to 9 billion property and equipment additions to be approximately $800 million and free cash flow to be in the range of $7 seven to $8 2 billion.
Our free cash flow guidance reflects a free cash flow to net income ratio of 1.1.
Finally, we expect to return at least $7 1 billion through dividends and share repurchases as we remain committed to returning a substantial portion of our cash to shareholders.
With that let's open it up so that we can take your questions. Angie. Thanks, KC 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.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one then zero on your telephone keypad.
You may withdraw your question at any time by repeating the one zero command.
Our first question will come from the line of Lisa Ellis with Moffett Nathanson. Please go ahead.
Hi, good morning, good stuff here.
Just a question about the outlook for fiscal 'twenty three.
Can you elaborate a bit further on what underlying macroeconomic outlook do you have embedded in guidance above and beyond the six points of FX translation and maybe the broader question is sort of how how is at all are you seeing.
The rising rate environment inflation sort of escalating dynamics of what we've been seeing all year long affecting your business. Thank you.
Great. Thanks, Lisa So yeah, let me give you a little bit of color around our guidance assumptions. So a revenue range of 8% to 11% for fiscal 'twenty. Three it includes two 5% inorganic contribution and that's compared to about 5% that we did in 'twenty two.
And that would represent then about 8.5% organic growth at the upper end of our range.
And so we continue to see really strong demand for our services Lisa.
And as you've seen the most recent estimate for ICU services continues to show the growth for our industry will be about 5%. So anywhere in our range. It will show us continuing to take share.
But at the same time, our growth is not directly correlated with GDP. We read the same things that you do and the latest GDP estimate for most of the world's largest economies are lower in 2023 and 2022.
So again, we're calling for double digit growth at the top part of our range.
Another year of double digit growth, which would have us adding significant scale, yet again on top of our current $62 billion business.
Maybe I'll add Lisa is that.
When we think about.
The macro environment, what we're really thinking about is what do our clients need right. So as so and I talked a little bit about this last quarter right is this environment affects different industries differently. So you got those who are really tied to the supply chain disruption in the.
<unk>.
Continuing to focus on cost, but you also see that as the uncertainty.
Increases so over the last 90 to 120 days you saw changes in the estimates around the.
The GDP growth for 2023. It you know it makes all clients really think about okay. What's my resilience is there more that I can do can I take advantage of the environment to push through deeper cost cuts that require you to change you know.
<unk> behaviors and so we really think about the environment as what does that mean, we need to do to help our clients and how do we continue to pivot and it's very similar if you think about what.
What we did in the early days of the pandemic where.
Pivoted a lot too for example, cloud using all of our learning organization. So that's the focus so you know.
It is always an opportunity to better serve our clients.
Mhm.
Okay, Yeah, great color. Thank you and then just.
Follow up on on bookings, realizing they're obviously always lumpy quarter to quarter and the overall number this quarter was extraordinarily strong continuing that 1.12 book to bill but is there any it wasn't sort of an unusual shifted mix.
Into outsourcing and less consulting is there any color or call out there or is that just sort of the vagaries of the kind of quarterly quarterly fluctuations. Thank you.
Sure and so you know at least as you mentioned, we feel really good about our bookings in Q4, it was our second highest bookings ever.
Our highest also being this year in the second quarter.
What I really liked about it was driven by broad based demand. So it was across all markets and all services and we Peel. It back we had good book to Bill in all dimensions of our business.
And.
And.
Without sourcing at a record of almost 10 billion and that was almost <unk>.
One 3 billion more than what we did for a loss, but our last record and we do continue to see a strong pipeline going into the year, even with those the secondary second best record bookings, but as I would I will say that as we often do.
We have seasonally lower bookings in quarter, one and we are seeing that again this year.
Terrific. Thank you.
Thank you. Our next question comes from the line of Tien Tsin Huang with Jpmorgan. Please go ahead.
Hey, Thanks, just tacking on what Lisa just out there with this.
Larger book to Bill and outsourcing relative to consulting is the shift to larger deals does that.
Until you actually tell us anything about client priorities and I'm curious if that.
Changes or even improves your visibility overall for fiscal 'twenty, given you have so much more in the way of larger deals.
And the backlog.
Yes, I mean, I I don't.
I mean, obviously we've got.
The larger deals you have a more visibility around large deals just because theyre larger deals and you see how it is and it's not really how we think about.
The business so much I mean, I think if you just take a step your underlying question is what are clients focused on rate and so what we do see is and what we actually more than to see what we are recommending is that you know leadership teams remain focused on prioritizing where they can get.
Good time to value make.
Making sure that they're doing things that are material not having a thousand different pilots as opposed to actually getting to scale and so a lot of that does lead to.
Our focus on larger transformation deals and it's tied to what we call total enterprise reinvention right. What we're talking to clients about is systematically reinventing and.
Actually we've got some research coming out at.
At the end of September that says, 68% of CFO say, they today have either three or more transformation programs, either going right now or about to start in parallel.
And so what that really does mean that is that you've got more companies do what we've been talking about since the early days of the pandemic, which is systematic transformation.
We'll try to do it faster and that does lead to larger programs and probably the bigger impact for us is less about visibility, but those obviously convert to revenue differently.
Yeah, and maybe change it I will just add in terms of if you just look at our bookings this year from an outsourcing type of work compared to consulting type of work compared to our history over the last few years Theres really no difference right, we actually have a slight percentage uptick in what we close out this year and consulting type of work bookings versus outsourcing. So there's no real difference in our mix.
Very good no. That's really helpful. Just on the my follow up on margins. If you don't mind, just thinking about investment priorities organic versus inorganic I know it's lower.
<unk> assumption on growth this year, but.
Any update there in terms of the balance and I'm wondering you know I wrote down I think you said, 48% growth in cloud.
For the year and I think back to the cloud first investment you did I think was a $3 billion investment seems like get a good return out of that so.
Do we see more investments like that at this point.
The cycle, so yeah, just thinking about organic versus inorganic interesting. Thanks.
So I'll take the inorganic point, and then I'll hand, it over to drill it gives more color. So first of all there is no change overall to our capital allocation strategy right. So we will continue to use VNA to fuel our organic growth.
And so you'll see the two 5% Tien tsin it is and the inorganic contribution it's generally in the zone of what we've done.
In previous years, and so maybe I'll also just take a chance to talk about what that means in terms of how we're going to invest in our business next year and how that relates to.
How we're seeing our profit because I think it's really important to point out that we're really proud of what we accomplished this past year and 'twenty, two where we did 10 basis points of expansion.
And Tien Tsin, we were continuing to invest at scale in our business right and also in our people, particularly this year with managing wage inflation. So as we look through next year, we expect to continue to invest in our business. We expect wage inflation to continue it's across all industries and across the globe and for US it's going to vary by geography.
Graffiti by scale.
And we will navigate that like we did this past year.
With a focus on pricing, which we all know if you like compensation a bit but just want to point out that we did see the benefit of improved pricing in our P&L in 'twenty two.
And so again, we're going to do all of this while changing the mix of people in our contracts and use of technology to absorb the higher investments that we're making organically and higher investments that we're making in our people, but so it's really important that we continue on our investment profile and with that I would I'd be really happy next year.
Land anywhere within the 10 to 30 basis points of op margin expansion.
And I would say that based on how we're going to best throughout the year, there's a bit more potential for us to have a more availability of variability in the quarters.
As we go throughout fiscal year 'twenty three on our way to 10 to 30 basis points of expansion for the year yeah.
Tien Tsin I would just emphasize we believe it is very important to continue to invest at higher levels in our business every year and that's our commitment and it's been we think a big reason for our success is that through every cycle, we continue to invest.
Yeah for sure. Thank you.
Thank you. Our next question will come from the line of Keith Bachman with BMO. Please go ahead.
Hi, many thanks I wanted to ask to start with on the outlook in particular, Julie if theres any.
Comments directional otherwise you could give on bookings.
Can you provide the revenue guidance in constant currency.
Even the backlog run off book.
Our book is tremendous bookings you've given so far the revenue guidance is very reasonable.
Pledge conservative.
But as you indicated in your prepared remarks, you had record bookings this year.
You're facing.
What your clients are facing a deep dive deeper economic challenge. So is there any comments you could give where their book to bill or the growth rates or any parameters on how we should be thinking about bookings this year, because it seems like the trajectory there could be.
From a revenue growth.
Well I'll, let I'll, let Casey start and then I'll add on yes, so Keith I'll start with a little bit more color on how we actually see.
Revenue kind of breaking out for for the year. So from a type of work perspective for the full year 'twenty three.
We do see consulting revenue growth to be within our within the context of the 811 that we gave out overall, which remember has 6% FX headwind embedded in that we see consulting revenue to be high single digits to double digits and outsourcing, we see being double digit.
And when you think about what our bookings expectations are while we don't guide to bookings you should.
Our view remains the same we look for over a rolling four quarter period of time for a book to bill to be over one.
Yes.
Great and Kevin I would just say is that.
Remember our focus is helping our clients.
Create value within whatever environment that they are operating in right, so and which is very different depending on.
Your industry, so like take right now providers in the U S. Right. They are focused on cost cutting because they went through a tough time with COVID-19. They are behind in digitization. So theyre investing there and they have to because they are facing one of the most difficult labor market.
They've ever had to know the you know sort of resistance and difficulty in automating before that is a completely different than a global consumer company like Unilever, we talked about in our script, whose reinventing everything.
<unk> been on this journey for a few years as you know looking to you know the next thing right and they're dealing with supply chain disruptions rate cost.
Inputs and so that is how we continue to succeed is by understanding the depth of difference in.
Our industry, we're using knowledge that we had from other industry to now accelerate what the providers are doing because they're now implementing SaaS.
<unk> to connect their patience, but we've been doing for years in retail right.
And in banking and in lots of other industries So Matt.
Our outlook.
Outlook for the year reflects our confidence that we are going to continue to be able to use that knowledge stay close to our clients and deliver on what they need.
Okay. Okay.
Thank you my follow up which is then focused on free cash flow and free cash flow guidance is equal touch certainly lighter than what we had modeled and I think the street had modeled.
Margins continue to move higher so just wondering what the.
Puts and takes that you might want to call out with the free cash flow guidance for the year and then I will cede the floor of many things.
Yeah. Thanks, Keith So as you know when we set our guidance we always first start with looking at the ratios. So the ratio that we have in our free cash flow guidance is a very strong one one.
Free cash flow to net income ratio, so we're happy with that.
We also are allowing in that guidance a bit of an uptick in dsos from our current level.
And then also we are assuming we are going to have the FX impact of.
6% that will obviously impact our free cash flow as well and as you know it's not unusual for us to start guidance at the beginning of the year with a free cash flow guidance range, that's below where we deliver the previously ear.
Okay. Okay. Many thanks.
Thank you. Our next question comes from the line of Bryan Keane with Deutsche Bank. Please go ahead.
Hi, good morning.
You know obviously a lot of folks are asking about the macro so just curious how the macros changed for you guys over the last three months and how that's influenced your business because it doesn't really show up much in results. So just curious how you would how you would frame that.
Well as <unk>.
As Casey said earlier, our guidance for the year. It takes into account the current estimates for 2023.
For GDP, which as we all know over the last year to 90 days have have decreased so we take that into consideration.
And where we see that really affecting.
Affecting our business is our ability to help our clients and think about what to do how do you execute a faster transformation are there new opportunities here I'm talking to a consumer goods client now where.
We're helping them think about well, how do we cut marketing and get more effective because they need growth, but marketing is one of the biggest spend areas for a consumer goods company and by the way, let's not waste a good environment to be able to catalyze.
Cultural and behavioral change as they think about things so.
That's where we are seeing it and otherwise our guidance reflects.
As you know, it's not a it's not a one for one but we obviously take into account the economic environment.
Got it yeah I was just looking at Europe in particular up 26% in local currency given all the concerns around Europe , which is a pretty amazing number doesn't seem to have come off much from the growth rates you've been putting up.
We're very proud of our European team because they are really close to our clients and maybe Brian I'll give you a little bit of color on that you know as it relates to Q1, let me give you a pullback a little bit on the revenue outlook that we have of you know for the first quarter and when we look at the markets. We see all the markets for the fourth for the first quarter with them.
10% to 14% revenue range that we get gave they all have the potential to be double digits and that includes Europe and then also for the consulting type of work in Q1.
We see a high single digit to low double digit growth range within that 10% to 14 <unk>.
And I would peel back consulting a little bit for you too within consulting we see that the tech portion of consulting to the systems integration will have continued strong demand and FMC we.
We expect to be in the lower single digits.
No. That's really helpful. And then just a quick follow up just thinking on Casey on visibility how has visibility changed at all if at all for a center. When you look out further on in the quarters as we get to Q4, it's obviously almost 12 months away. So it's probably a little bit hard to figure out exactly the right growth rate.
But just thinking about the visibility of the business.
So I would say Brian that you know in terms of looking at the back half of the year I mean, that's no different than the way. It is honestly every year you know we talked a lot about what we just mentioned on how we look at the macro in the market, but you know the back half of the year.
We always.
It is always less certain.
At this time of the year, then then obviously the first quarter and the first half.
No different than what we have experienced every year and as always clients still most of our clients are calendar year and they'll set their budgets you know and we will know more about that in January . So it's really the same it is.
Yes.
Got it great congrats on the results.
Thank you.
Thank you. Our next question comes from James Fawcett with Morgan Stanley . Please go ahead.
Thank you very much I appreciate all the commentary today as usual.
Looking at kind of the.
The supply and kind of how you're managing your own employees et cetera.
How does the shifting client priorities manifest itself and where and how your services are being delivered in and how is that influencing your talent strategy right now around pace of hiring where you hired et cetera.
Okay.
Well as you know our.
We have a very deep competency in supply and demand then and actually over the course of the last couple of years. We continue to innovate we have a incredible what we call integrated talent control tower that is able to predict earlier and earlier.
And our sales cycle, where the skills will be needed and what type of skills.
And so.
For Us this is just normal business right and and keep in mind technology demand is really incredible right. I mean, you saw that in our results all strategies lead to technology and we're super pleased with not only our performance there, but what we're seeing ahead as.
<unk> continue to build the digital core as fundamental to all of their other strict.
Strategic needs and our talent supply chain is able to see that predicted understand the skills and keep keep moving forward.
Yeah.
That's great and then turning to pricing just wondering what the tone and tenor of pricing conversations have been.
Although it's a progressed.
And you know how are you building in or how should we think about what's being built into your formulation of outlook around a magnitude of potential uplift to revenue from pricing versus margins et cetera.
So let me just remind you that when I'm talking about pricing in my answer I'm talking about the margin on the work that we've sold and I'm really pleased we've continued to see improvements in pricing and we are seeing the benefits I mentioned this earlier, but I'll just repeat it we are seeing the benefits come through in our P&L.
And we continue to focus on improvements in pricing as we enter into fiscal year 'twenty three so I'm really.
I'm really pleased with the progress we've made.
That's great. Thank you very much.
Thank you.
Okay.
Thank you and our next question will come from the line of Jason Kupferberg with Bank of America. Please go ahead.
Good morning, guys. Thanks.
So I just wanted to pick up on your comment on one of the prior questions around I think you said strategy and consulting up in the low single digit range in Q1. So curious if that's the same kind of range you anticipate for the full year fiscal 'twenty three and is that below corporate average level just reflective of the more discretionary.
Nature and growth oriented nature of those services.
Yeah. Thanks, Jason Yeah in terms of Q1, it's really just a few simple things one we've got a tough compare to is theres less when I mentioned, the less inorganic but really does also hit in essence in the FMC part and then as Julie talked about you know a lot of occupancy practitioners are really focused on some a lot of the larger transformational deals and not just have.
Jason different a different revenue yield and it bleeds in later throughout the year.
Okay understood, maybe just turning to the supply side for a second it looked like attrition was unchanged in Q4 versus Q3 wondering what you're expecting there in fiscal 'twenty three as well as what you're expecting for wage inflation relative to 2022, and whether or not some of the broader layoffs across other parts.
To check industries is that taking some of the pressure off some of your supply metrics at all.
Yeah, So I'll start Jason with the last part I mean, we had a really pleased with the way we were able to grow at scale profitably, while managing the wage inflation in FY 'twenty, two and as we said a little bit earlier, but just to repeat we do expect wage inflation to continue and we have factored that into into our guidance.
Yeah and.
I would just say to you that.
Technology skills are in demand by both companies as well as our competitors because technology is at the core our strategy and so we're expecting to have a continued tight labor market and we would continue to expect us to really.
Really excel because despite that market you know as you know even this last year. We added 100000 people. So I don't the fact that there has been some layoffs in certain markets isn't really I think going to change much great. Thank.
Thank you.
Operator, we have time for one more question and then Julie will wrap up the call.
Thank you and that question will come from the line of Bryan Bergin with Cowen. Please go ahead.
Hi, good morning, Thank you.
I'll just start on the growth outlook can you just give us a sense on how you're thinking about the second half trajectory you're just in the fiscal 'twenty three range just given the significant uncertainty just curious how you went about building that second half forecast and then just within the year are you expecting the strategic priority is to hold the double digit growth. So cross song in cloud first snacks or any of those a little bit more exposed to potential slow.
On an uncertainty.
Yeah, So I'll I'll, maybe just start with the overall outlook that we have right. So.
You can see that we start with eight 8% to 11 I already gave.
The color on that so and within that obviously, we have a strong start at 10% to 14% growth.
And.
In terms of really what that looks like for the rest of the year. I mean, we'll continue to give guidance like we typically do as we progress through FY 'twenty three I mean, as Julie mentioned, we see continued strong demand.
And our technology or areas of technology.
And other than that we don't really give any more guidance and kind of view on revenue outlook.
Than what I've already shared.
And just I think it's always important that we are continuously thinking about both the near term this fiscal year and the longer term and anchoring on the five forces of change for the next decade, and so total enterprise reinvention talent.
Talked about the investments, we're making in sustainability, we just made a great acquisition this quarter and carbon intelligence, which is all about consulting around carbon getting to net zero strategies, the meta versus continuum small today, we're the leading enterprise app user in our own way of <unk>.
Onboarding, but lots and lots of interest and we're already.
Making those investments and then the ongoing Tech Revolution, and so that's why as you think about our results right. We're investing for today and tomorrow and really are looking at the demand that we see over the next decade.
Okay. Okay, and then it looks like just on M&A. It looks like you did close on more in <unk> than you had initially anticipated.
How should we think about the planned spend in fiscal 'twenty three for M&A underlying the two 5% growth contribution and then just how do you start off the year in <unk>, what's the inorganic assumption and the <unk>.
And that outlook. Thank you, yes, sure. So you're right. We did end up spending $3 4 billion for the year and 'twenty two because we were able to get some of the regulatory approvals.
<unk> done this last fiscal year 'twenty, two that we weren't sure of the timing.
And youll see that because of that.
We're going to continue to always provide the inorganic outlook on a full year basis, so that two and a half as a full year. We're not we don't really do that by quarter because that can again can also be lumpy.
We're not going to.
Continue to provide the capital allocation amount of as we go into 'twenty three just because it can it can really vary by the end of the end of the year and we will be able to you'll be able to see it and we will reported every quarter, yes, it's probably worth reminding that last Q1, we had umlaut and Nevada, which were both very large acquisitions.
<unk> come in in Q1, so probably just good to remind everyone. That's part of what's driving the Q1 S and see results too.
Great. So before we wrap up I do want to mention that Angie Park, who has been our head of Investor relations for the past six years.
<unk> has been promoted to become the CFO far are really outstanding technology services business.
And she has been an absolutely incredible head of IR and we're particularly.
<unk> grateful for how she has helped lead us through some of the most turbulent times in the history.
Of Accenture I know from speaking to our investors and analysts how much they've appreciated <unk> steady hand, her commitment to transparency and connection and I know, we'll all miss her in this role but are extremely excited to see her start the next chapter of what has already been an.
<unk> career, so thank you very much.
<unk>.
I'm also pleased to welcome Katie O'connor, who will become our new head of Investor Relations. She's got incredible experience. She has held many finance roles. During her 25 years at Accenture and so please join me in welcoming Katie and I know she is looking forward to getting to know all of you.
In the days ahead.
In closing I do want to thank again, all of our people and our managing directors for what Youre doing every day.
Our people our actions and our results in FY 'twenty to have positioned us to be.
Very strongly going into FY, 'twenty, three and create even more 360 degree value and finally and.
And very importantly, thank you to all of our shareholders for your continued trust and support thank you.
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