Q4 2019 Earnings Call

Ladies and gentlemen, Thank me standing by and welcome to Accentures fourth quarter fiscal 2019 earnings call No. At this time all participants on I'll listen only mode. Later, we will conduct a question answer session. If you wish to place yourself in Q4 questions at anytime. Please press Star then one you may remove yourself from the Q by the press the pound.

Q.

As a reminder, today's call is being recorded how we'll now turn the call over to managing director head of Investor Relations.

And do you Park. Please go ahead.

Basic cabin and thanks, everyone for joining us today on our fourth quarter in full year fiscal 2019 earnings announcement.

The operator, just mentioned Angie Park, managing director head of Investor Relations.

On today's call is you'll hear from GE lease Lee, our Chief Executive Officer, and KC Mcclure, Our Chief Financial Officer, We hope you've had to an opportunity to review the need to lease we issued a short time ago. Let me quickly outlined agenda for today's call Julie will begin with an overview of Barbara adult Casey will take you see the fund.

It will detail, including the income statement and balance sheet, along with some key operational metrics reflect the fourth quarter and full fiscal year.

Julie will then provide a brief update on our market position or Casey provides our business outlook for the first quarter a full fiscal year 2020. We will then take your questions before Julie provides a wrap up at the end the call. Some of the matters will discuss on this call, including our press this outlook, our fourth lucky and asset are subject to known and unknown risk.

The 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 in quarterly reports on Form 10-Q , and other FCC Bradley.

These risks and uncertainties could cause actual results could differ materially from those expressed in this call.

During our call today, we'll reference certain non-GAAP financial measures, which we believe provides useful information for investors. We include reconciliations of non-GAAP financial measures, where appropriate to gap in our news release or in the Investor Relations section of our websites at Accenture Dot com as always Accenture assumes no obligation to update our.

Some presented on this conference call now, let me turn the call it but to Julie.

Thank you Andy and thanks, everyone for joining us.

As a company and the leadership team, we focus every day on delivering on our commitment and creating value for our clients and today. We're proud to announce that we have delivered another year of outstanding financial results meeting or exceeding each of the objectives. We laid out in our initial fiscal 19 business outlook.

And I know the pair our chairman and CEO , who passed away in January would have been very proud of the accomplishments. This year of our nearly 500000 people, including more than 7000 outstanding managing directors.

I would like to add a special thank you to David Roland for his inspiring and exceptional leadership. During these past several months and to our entire Global Management Committee, who came together under Davids leadership to ensure that we delivered on our commitment.

And which also must be ultimate way to honor Pierre and his incredible contribution to Accenture.

Let me share a few highlights for the year.

We generated record new bookings, a $45.5 billion, including our highest ever quarterly bookings up $12.9 billion in Q4.

Revenues for the year were $43.2 billion, an 8.5% increase in local currency.

We delivered earnings per share of $7.36, a 9% increase on an adjusted basis.

Operating margin was 14.6% an expansion of 20 basis points.

We generated outstanding free cash flow of $6 billion.

We returned $4.6 billion in cash to shareholders to share repurchases and dividends.

And we just announced our first quarterly cash dividend of 80 cents per share, which reflects a 10% increase over the equivalent quarterly rate last year.

We have demonstrated once again, the durability and resilience of our business and the strong demand for our services positions us very well for fiscal 20, now let me hand over to Casey, who will review the numbers in greater detail Casey.

Thank you Julie and thanks to all of you for taking time to join US on today's call. We were very pleased with our results in the fourth quarter, which complete another outstanding gear for Accenture. Our results continue to provide strong validation of our leadership position in the marketplace, our relevance to clients and our ability to manage our business that day.

On the AMAK environment, all to deliver significant value to our clients our people and our shareholders. Once again, our fourth quarter results reflect our constant focus to deliver strong and consistent financial results across our three key imperatives for driving superior shareholder value. So.

Let me summarize a few important highlights before I get into the details.

Revenue growth of 7.2% in local currency continued to be highlighted by strong double digit growth in all three areas within do including digital cloud and security related services.

Growth continue to be broadbased with the vast majority of our industries at high single to double digit growth levels.

We continue to extend our leadership position with growth at about two times the market.

Operating margin was 14.2% for the quarter, an increase of 20 basis points, resulting in 20 basis points expansion for the full year.

Importantly, we delivered this expansion while investing at record levels in our business and our people to position us for long term market leadership.

We delivered very strong EPS of $1.74, which represents 10% growth, even with an FX headwind of about 2% and.

And finally, we delivered free cash flow of $1.9 billion, which surpassed our expectations driven by our strong growth and profitability and continue to superior DFL management.

Now, let me turn to some of the detail.

New bookings were a record 12.9 billion for the quarter and surpassed our previous all time high by over $1 billion. We had very strong overall book to Bill of 1.2.

Consulting bookings were $6.1 billion with a book to Bill of one daughter.

Outsourcing bookings were $6.8 billion with a book to Bill of 1.4.

We were extremely pleased with our bookings this quarter, which were broad based and strong across many dimensions of our business.

They continued to be dominated by high demand for digital cloud and security related services, which we estimate represented more than 65% of our new bookings.

For the full fiscal year, we delivered 45, and a half billion dollars to new booking.

These record bookings reflect the relevance of our services and the high level of trust, our clients, placing us as their partner.

Turning now to revenues revenues for the quarter were $11.1 billion, a 5% increase in us dollars and 7.2% in local currency.

Consulting revenues for the quarter were $6.2 billion up 5% and U.S. dollar and 7% in local currency.

Outsourcing revenues were $4.9 billion up 6% in us dollars, an 8% in local currency.

Looking at the trends an estimated revenue growth across our business dimensions technology services posted strong high single digit growth strategy and consulting services grew mid single digit and operations continued its trend up double digit growth.

Taking a closer look at our operating groups resources delivered its eighth consecutive quarter of double digit revenue growth at 12% in local currency growth continued to be stronger across all three industries and all three geography.

Products grew 8%, reflecting continued strength in our largest operating grid.

We had strong growth across all three geographies and very strong double digit growth in life Sciences.

H.P.S. grew 8% this quarter, reflecting double digit growth in health and strong growth at public service, we were especially pleased with a strong growth in both growth markets and North America with North America benefiting from continued strong growth in our U.S. federal business.

Communications media technology grew 5%, reflecting double digit double digit growth and software platform.

And overall, we saw double digit growth in Europe , and strong growth in growth markets.

Finally financial services delivered 4% growth inline with our expectation.

And shorts again grew double digits, and we saw continued improvement in banking and capital markets globally.

Overall financial services delivered double digit growth in growth markets strong growth in North America, partially offset by contraction in Europe .

Turning to the geographic dimensions of our business I'm very pleased with a continued demand across all three of our geographic region, which illustrates the diversity of the business that continues to serve us well.

In North America, we delivered 8% revenue growth in local currency driven by continued strong growth in the United States.

In Europe revenues grew 4% local currency with double digit growth in Italy, and Ireland in high single digit growth in the Netherlands.

And we delivered another very strong quarter in growth markets with 12% growth in local currency led by Japan, which again had very strong double digit growth.

We had double digit growth in China in Singapore, as well as high single digit growth in Brazil.

Moving down the income statement gross margin for the quarter was 31.1% compared with 30.8% for the same period last year.

Sales and marketing expense for the quarter was 10.6% compared with 10.4% for the fourth quarter last year.

General and in general and administrative expense was 6.2% compared to 6.5% for the same quarter last year.

Operating income was $1.6 billion and the fourth quarter, reflecting a 14.2% operating margin up 20 basis points compared with quarter for last year.

Our effective tax rate for the quarter was 26.6% compared with an effective tax rate of 21, it's a 28.0 for the fourth quarter last year.

Diluted earnings per share, where dollar 74, compared with EPS of $1.58 in the fourth quarter last year.

Day service outstanding were 40 days compared to 39 days last quarter and 39 days in the fourth quarter of last year.

Free cash flow for the quarter was $1.9 billion, resulting from cash generated by operating activities of 2.1 $2.1 billion net of property and equipment additions of 241 million.

Our cash balance at August 31st was 6.1 billion compared with 5.1 billion at August 30, Onest last year.

With regards to our ongoing objective to return cash to shareholders.

And the fourth quarter, we report first or redeemed 2.1 million shares for $407 million and an average price of $189.78 per share.

And our board of directors declared a quarterly cash dividend of 80 cents per share to be paid on November 15th a 10% increase over the equivalent quarterly rate last year.

Now I would like to take a few minutes to summarize our outstanding year and as Julie mentioned, we were extremely pleased that we successfully executed our business to meet or exceed all aspects of our original outlook that we provided last September .

Revenue growth of 8% and 8.5% in local currency for the full year was above the top end of the guided range that we provided at the beginning of our fiscal year.

This result is a strong indication of the durability and resilience of our growth model, which is underpinned by our focus on achieving market leading scale across key industries geographic markets and services.

This includes our strategic Bose focus to lead in the new which represents approximately 65% of revenues for the year.

Operator operating margin of 14.6% reflected a 20 basis point expansion over F., why 18 and was aligned with our original outlook.

Diluted earnings per share was $7.36, reflecting 9% growth over adjusted ask why 18, Es and was above our original guided range.

As a reminder, in fiscal year 18, EPS was adjusted to exclude the impact of tax law changes.

Free cash flow of 6.0 billion was well above our original guided range, reflecting a free cash flow to net income ratio of more than 2.11, excuse me 1.2, driven by strong profitability and can continued industry, ladies leading DSS and finally, we exceeded our objectives for our.

Kaisha by returning 4.6 billion of cash to shareholders, while investing roughly 1.2 billion across 33 acquisitions to acquire critical skills and capabilities in strategic high growth areas of the market.

So again, we had a truly outstanding year, and we feel really good about our positioning as we head into fiscal 20, now let me turn it back to Julie.

Thank you Casey.

Our strong results reflect the power of our growth strategy, our strategy starts with what our clients.

And our clients need to transform their entire enterprise.

What we see is that most of our clients are still in the very early stages of their transformation journeys, the starting point and speed our different by industry and by company. The scope of the ambition is consistently broad.

Our fiscal 19 results reflect the strong demand for our services and the significant growth opportunities in front of us I.

I am extremely pleased that we finished the year with 200 diamond clients, which represent our largest relationships with many of the world's most iconic companies.

Also proud to share with you that in fiscal year 19, Accenture interactive achieved a significant milestone reaching over $10 billion and revenue.

And finally this quarter, we had 16 clients with new bookings over $100 million.

[laughter].

Clients choose accenture for their largest and most complex transformation programs because they know we are uniquely positioned to create value by combining our unparalleled unparalleled technology expertise.

Our privileged ecosystem relationships, our focus on innovation and our broad industry depth.

Our proven track record of global EMR implementations at scale, coupled with our capabilities from strategy to operations creates significant value for our clients.

Let me double click on a few of these important elements of our business.

Starting with our deep technology expertise in our privileged ecosystem relationships.

Transformation for our clients begins with their understanding that technology is core to their business.

And they turned to us because technology is core to our business.

The depth breadth and scale of our technology expertise combined with the power of our deep ecosystem relationships, where we are a leading partner with all the key players is critical to being our clients partner of choice.

Another element I want to highlight is our deep and broad industry expertise across our 13 diverse industry groups.

This has all this Brett has always provided us durability and resilience in our business and today. It has created another competitive advantage.

Ceos are increasingly looking to benchmark themselves against the best companies regardless of industry.

And they are turning to us for our cross industry expertise.

Because we bring both deep industry expertise in beer industry as well as across other industries, we can help drive even more value at speed for our clients.

Let me bring this to life with an example of a solution that we originally developed for the communication industry and are you now using to accelerate value in other industries.

For comps companies building out their networks and providing excellent customer service across all channels are the biggest imperatives.

We helped Verizon use artificial intelligence, coupled with our deep understanding of the industry to create digital assistant experiences at scale. They can now address more than 70% of horizons calls.

In many cases, a 20 minute call with an agent has been reduced to a three to four minute digital interaction.

Mr Grantley, improving the customer experience.

But rises agents have enhance their skills and now have more time to handle the most complex call, which is also the most interesting work.

As you can imagine call centers represent a significant opportunity to drive value in many industries.

Recognizing this we were able to tailor our solution to the unique needs of our clients in both utilities and public service.

At Enbridge, the global Energy company, we implemented a solution in their gas utility operations to address increase similar to horizon, such as billing questions and service changes to improve their customer experience.

No callers are able to complete many transactions digitally and customer satisfaction is up significantly.

And the new Mexico Human services Department is using our solution to help employees answer questions about Medicaid faster and more accurately.

For example, the state has reduced the time it takes to complete the process of providing Medicaid coverage to newborn babies by up to 75%.

And our solution has freed up employees to focus on more complex tasks enhancing their experience as well.

Let me wrap up by talking a bit more about our people and the inclusiveness of our culture.

Our people and culture or our biggest competitive advantage and our unwavering commitment to inclusion and diversity enables us to recruit the most talented people in our market.

This creates an environment, which unleashes innovation and allows our people to perform at their very best.

Today, I'm announcing yet another milestone on our path to gender equality by 2025.

With nearly 500000 people around the world and as a technology powerhouse, we're now 44% women.

In addition to gender we are focused on leading in all areas of inclusion and diversity and I'm proud to announce it for the second year in a row. We've been ranked number one on refitted diversity and inclusion index, which is previously produced by Thomson Reuters and identifies the one.

Hundred publicly traded companies around the world with the most diverse and inclusive workplaces based on environmental social and governance data from more than 7000 companies.

With that I'll turn it over to Casey to provide our fiscal 2000 <unk> business outlook Kecy. Thanks, Julie now, let me turn to our business outlook.

For the first quarter of fiscal 20, we expect revenues to be in the range of 10.9 to 11.2 billion.

This assumes the impact of FX will be about negative 2% compared to the first quarter fiscal 19 and reflects an estimated 5% to 8% growth in local currency.

For the full fiscal year 20 based on how the rates have been trending over the last few weeks. We currently assume the impact of FX on our results in us dollars will be approximately negative 1% compared to fiscal 19.

For the full fiscal year 20, we expect our revenue to be in the range of 5% to 8% growth in local currency over fiscal 19.

For operating margin, we expect fiscal year 20 to be 14.72 14.9.

10 to 30 basis point expansion over fiscal 19 results.

We expect our annual effective tax rate to be in the range of 23, and a half to 25 and a half. This compares to an effective tax rate of 22 and a half in fiscal 19.

For earnings per share, we expect full year diller diluted EPS for fiscal 20 to be in the range of $7 and 62 to $7, an 84 cents or 4% to 7% growth over fiscal 19 resolved.

For the full fiscal 20, we expect operating cash flow to be in the range of 6.35 to 6.75 billion property and equipment additions to be approximately 650 million and our free cash flow to be in the range of $5.7 billion to $6.1 billion.

Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.1 to 1.2.

Finally, we expect to return at least 4.8 billion through dividends and share repurchases as we remain committed to returning a substantial portion of cash to our shareholders.

And with that let's open it up so we can take your questions Angie.

Thank you ladies and gents. Thanks.

Thanks, Casey asset each keep to one question and a follow up to allow as many participants as possible as question. Kevin would you provide instructions for those on the call. Thank you ladies and gentlemen, if you wish to ask a question. Please press Star then one of your Touchtone phone you will hear a tone, indicating that you are in Q you may remove yourself from cute anytime.

My depressing the pound key once again for questions. Please press Star then one.

First question from the line of 10 Jen Wong.

JP Morgan. Please go ahead.

Thanks good.

Morning.

No surprise, let me outlook.

But I did want to ask on the bookings here. So outsourcing bookings were strong you said that large deals that come through you suggested that it.

Great.

On the consulting bookings that was flattish for the.

I guess I'm looking at this like about.

So we expected rotation here perhaps.

More outsourcing revenue and maybe bookings are looking at this school 20 could you give us maybe your views on on outsourcing versus consulting group.

Morning.

Yeah sure. So thanks to engine for for the question maybe start with the last part your question in terms of how we're thinking about growth in fiscal 24 consulting and outsourcing we expect for the full year that growth for consulting and outsourcing they'll both be in the mid to high single digit range, that's baked within our 5% to 8% guidance for the year.

And is taking your booking questions. As you mentioned, we had record bookings for this quarter $12.9 billion and if you Peel that back and look at our consulting bookings. We also had bookings at 6.1 billion in consulting type of work and that's one of our highest booking quarters ever and it was at or below book to Bill target of one data or.

Higher.

And I think importantly, tangent as well we feel really good about the pipeline that we have as we enter in or in the beginning parts of fiscal 20, and and we say that ought to on an overall broad base a in terms of all aspects of our business.

And so when you when you Peel that back and you look at overall, what we've done in terms of our bookings for the fourth quarter and consulting our overall bookings at 12.9 billion a record as well as our strong pipeline as we head into fiscal 20, we still fit we see balanced growth across both types of work.

Your next question from line of Bryan Bergin of Cowen. Please go ahead.

Hi, Thank you.

I wanted to follow up just on that booking question. It seems like the variability quarter to quarter has become more volatile can you just talk about the major drivers of that and is that something that we should expect to continue in fiscal 2000.

Yes.

In terms of our bookings I think if you take a look out how we position bookings and think of it from a quarterly basis and we said this kind of historically they can be lumpy from quarter to quarter and really what we're looking at in terms of our overall bookings that we meet on a prolonged period, our bookings targets, which for consulting or anything.

From 1.0, and above which we did this year in this quarter and for outsourcing, which tends to be 1.1 and above over a prolonged period and this quarter. We did 1.4. So we.

We expect that there'll be some variability saw that certainly this year, what we had really strong bookings a quarter too we had a little bit lighter as it relates to the rest of the full year in quarter, three and we signaled that based on our pipeline. We thought that we would have very strong bookings in Q4, and indeed, we did so that's something that we're very use a used to as we think about fight.

20, we tend sometimes to have Q1 might be a little bit of a lighter bookings in relation to the rest of the quarter, but again for this this coming off at a particularly very strong year in quarter. Four you know that maybe the cases as well for this year, but we feel very strong very well, we feel very good about our strong pipeline as we.

Entering the 20.

Okay. Thanks.

Just a follow up you're on your talent and resource model. As you approach 500000 employees can you talk about what you're doing to reduce the manual effort around work I think in the past you disclosed automated ft or efforts within your operations group. So any update you can provide there I understand the context of Jim just the road the uptick that we saw in attrition to out to 19% and your comfort levels. There. Thanks.

Well I'll, let Casey address the specific uptick because around me attrition, but let me give you a broader perspective on how we look at talent. So we you know one of our greatest strengths rate is how we manage talent in people and so if you look at it at any given time.

Time, we are always adjusting the use of technology and our business and the talent that we then need to hire and so we have talked about it in the context of our operations business, but when you think about the work that we do in technology with our my Wizard platform, where are you were using the latest an artificial intelligence and.

Analytics to help our clients that was work that five years ago, we used people and so we don't think about this as a particular sort of strategy to do X, but that at any given time, we are continuously innovating. How we are giving services and then adjusting what that means for our talent.

And we do that really seamlessly quarter to quarter and year to year.

And Brian just to answer your question on actual attrition number when we did have a slight uptick this quarter, but we don't but by about 1%, but we feel good about that a strong retention rates that we have in key strategic areas of our business and that includes areas such as you know our digital practice as well as a strategy and consulting and just.

As as you know, we really have no issues and attracting the people that we need no. It people choose accenture because of our strategy, our strong financial performance and experience that we provide to our people continuous learning the amount of investments, we make in training and innovation and it really does make sense or where the best places to to build.

Correct.

And mix, we have David Togut. So evercore. Please go ahead.

Thank you good to see the booking strength.

I'd like to ask about any changes you're seeing an average contract lengths.

Especially given.

The ongoing strength and outsourcing bookings and possibly in the evolution of your shift to the new are you in more of an operating and run stage with a lot of bigger clients.

Yes, there's really no change to the duration of our contract.

Our bookings no change.

David I would think about really think about what we're seeing in the business because really our clients are focusing on enterprise wide transformation and with that requires is that we bring all of our capabilities together really from strategy to operation and you saw that in.

And the you know the bookings we have this this last quarter of 16 clients with over 100 million and just to give you. An example, there we're working in products with one of those with the products company Fortune Global 100, whose transforming HR using everything from our strategy capabilities to our operations.

Capabilities to transform be experience from hiring to retirement and at the same time drive down costs and our competitive advantage. In this market is that we're able to bring all of those capabilities and what we're seeing is that boards and Ceos are really.

Focusing on the enterprise wide transformation, which means large in strategic programs, which is what we are very uniquely positioned to deliver.

Understood just as a quick follow up you announced a leadership change Tuesday at ahead of your products growth your largest operating group what changes should we expect with simony taking over products leadership.

Yeah, that's going to be a very seamless transition to Simon he's been working in products for most of his career.

And brings the deep both industry operational and sales expertise so that should be very seamless.

And next we have questions from the line of Bryan Keane of Deutsche Bank. Please go ahead.

Hi, guys. So I wanted to ask about.

Digital if I look inside the new digital appears to be slowing a little bit more than cloud security.

It's off its high growth rate is clear 18, so just thinking about its digital getting more penetrated or more competitive.

Inside there I know, it's still growing robustly yet.

Like high teens, maybe low 20%, but it is off of the growth rate than it was previously so we always get questions about penetration there. Thanks.

Yes, sure Brian I'll answer the questions on the growth rate I have ever the jolie that so talk about what's happening within the digital business, but so digital.

In terms of what we estimate for the full year. We think we estimate digital will be about a 21 billion dollar business. So it's you know very significant in terms of of of scale, it's about 50% almost pushing 50% of our overall revenue base. So with that scale as you mentioned in terms of growth I mean, we are at the very.

Hi teens in terms of growth rates. So we're really pleased with what we're seeing and the continued very strong high teen double digit growth that we haven't digital.

And we expect that as we look into next year that overall, we will have a you know and the new will continue which includes digital to have double digit growth overall enough like 20.

I think brand is any it's important to look at again, what our clients are doing when we think about where we are in our growth strategy as I said earlier, we do see our clients at the very early stages of their transform formation and so really think about what is happening in three buckets. The first is they are.

Building out their digital core right, which is establishing the technology Foundation and so in the scale parts of our business you know intelligent platform services, which is all about the nexgen platform, that's 40% of our business today growing double digits, because they need our clients need to establish that new.

Sounds nation, that's going to fuel the enterprise transformation at the same time in the digital core we have we're still in the early stages of scaling areas like data right. How our clients are going to be able to find ensure eight that data, which is just you know just really beginning to think about how much data there is security.

Which is only at two and a half billion and then the move to the cloud so within building. The digital core we have scale plays like intelligent platform services growing double digit and then we have the next scale plays which are also growing double digits. Then the second big area, our clients or are focused on is driving the growth agenda.

Which is all about creating better customer experiences, which is fueling accenture interactive, which hit $10 billion. This year, but it's also fueling the focus on new products and services, which is what X Dido is about that's a very early stages right, having a <unk>.

Next in services, so that'll be the next area that we're really focused on scaling and the growth agenda and then the third area is in optimizing their operations and again scaled part of our business operation, which is growing double digit right and that's because it helps our clients.

Reduce costs to increase their investment capacity, but it also enables our clients to do the transformation because we have invested in operations to use machine learning and other forms of emerging technologies and so there are accessing those technologies.

Through our platform in operation, but then at the same time right you have again ex Dido, where we're seeing the early stages of digitizing manufacturing, creating the connected plant, which will be the next play that we are scaling right and then of course at any given time, we're in the innovation.

In space and we're looking at the emerging technologies that will fuel growth, but in each of the areas of what our clients are doing we have scale today growing double digits and then we have the next plays that we're scaling.

That's helpful. I, just had one follow up for currency on on tax rate as your tax rate going up.

It looks like about 100 to 300 basis points and I know, there's some moving pieces tax rate. So can you just talked about.

Factors, we should be considering there for traction this fiscal year.

Yes, sure Brian So our range just to maybe the anchor to where we're starting what so our range for fiscal 20 is up about a half a point compared to where we started last year for fiscal 19.

And the increase in from fiscal 19 to fiscal 20 is primarily due to the U.S. tax reform provision that phased in over two years and as a reminder, there are four factors that I think you probably know well, but just may bear repeating that can influence our tax rate in any given year and the first one is our geographic mix of our Inc.

Second is the changes in our prior year tax liability. The third is our final determinations in the fourth is attacks that impacts on our equity compensation.

Thanks next question from a line of Russia, or what Bernstein. Please go ahead.

Hi, Good morning. Thank you for taking my question my questions for you today, given your background in M&A and what's happening in the marketplace should we expect accenture to potentially look at larger deals now versus the tuck ins you've done historically and then as a follow up question over the last couple of years, you've done a lot of acquisitions and Accenture entered.

Active so going forward, what should we expect the focus of M&A activity.

Well, let me. Thank my question actually that let me start with the overall strategy around acquisitions, which is.

What has served us extremely well and we think about acquisitions to do three things to scale hot areas in the market. So for example, this year, we did about six technology acquisitions and technology three of them in particular around the intelligent platform services, where I've already talked about we're seeing double digit.

A growth and we need to can we wanted to help scale our capabilities. The second is to add new capabilities and this has been a lot of our acquisitions in the new which has been about 20 of the acquisitions have been in digital and security, particularly as you pointed out and Accenture interactive and and so.

That is about all about adding new capabilities and then the third is really getting deeper industry and functional expertise and so this year, we did for in the area of financial services, where.

We really it is expanded our expertise in that industry through these acquisitions. So you should expect that our strategy is always going to be around those three areas and that it is meant to fuel our organic growth now with respect to.

Whether we would do a larger acquisition, we've always said that we could do a larger acquisition, but it would really need to make sense for us in the context of what we look to acquisitions to do so there's certainly no plans to do that but obviously, we have the capability if a if that ever made sense and then finally.

As we think about going forward, we'll certainly accenture interactive is an important focus point and we've done a lot of acquisitions. There as you think about where we're scaling right to the next scale plays like X. Dod Oh, you should expect to see that we're going to focus on and that area as well and so you know it.

At each year, we're going to look at where we need to either scale add new capabilities or.

Oh are at industry expertise and it'll really change based on what we're seeing in the market and whats available.

That's very helpful. Thank you very much.

And next questions from Milan, Keith Bachman Bank of Montreal. Please go ahead.

Hi, Thank you very much Julie I'd like to direct this first one to you.

And that's how do you think about Accentures business line related to more challenging economic cycles and to put a little more context on the question.

It would seem to me that operations is pretty resilient if in fact, the economy got tougher.

The one question is strategy and console.

Insulting rather than if I look back to 2009.

When the economy got really tough.

The stretching consulting element declined double digits and so if we look at you know out the next year too if we had deferred a more difficult economic times, how a strategy and consulting different today than it might be more or less immune from economic cycles and have a quick follow up for Casey.

Sure well, we sort of take a step back and think about what's what we've been trying to achieve over the last five years and that has been our rotation to the new meaning focusing on the most relevant services that are clients need to transform their businesses. So our strategy.

And consulting business today right is focused on these new services, how do you take a block chain and apply it to financial services, how to use data and combine it with deep customer insights and use the skills have been accenture interactive to create a different.

Customer experience and we believe that in a downturn scenario are relevant in to our clients comes in the fact that they are still going to need and in fact, we think during that time, even more so right to use these capabilities that we have in order to drive their growth.

The agenda optimize their operations and of course still build the digital core and so that's where we see the resilience of our current business model. Okay. All right. Thank you and keys or just a quick one for you.

On the cash flow, particularly operating cash flow looks like capex up a little bit, but if I focus on operating cash flow, you're guiding it to be more or less flattish.

Year over year, and while I understand that that your your cash flow metrics on guidance or almost.

And output.

But is there anything you wanted to call out as being unusual that would make the year over year comparisons on operating cash flow.

A little more challenging or either pluses or minuses on the operating cash flow and that's it from me. Thank you.

Thanks Keith.

In terms of operating cash flow you know in our overall free cash flow, there's just a theres, a minor uptick and $50 million and and capital expenditure. So thats not really very different but really the way we look at our free cash flow is the goal that we have as for it to be over one was at one or better.

Yeah, right in terms of percentages.

Net income the ratio to net income and so with our guidance. This year, we're actually at 1.1 to 1.2, So thats outstanding another year of outstanding free cash flow now this year and definitely 19, we did it.

Above 1.2, and Ah why did we do even better and what are they influences that can you put put us in one place for the other it really has to do with a couple items that I would point out and this year in particular, we had significant outstanding performance, continuing and our Dsos and so for everyday ideas for every day of DNA.

So it's about.

So 130 give or take two or free cash flow. So we always assume at the beginning of year that we give ourselves a little bit room to stay in the low fortys.

Because we that would still be outstanding with it our without our business and as well and I'll just point out maybe a couple other things that influenced the fourth quarter. For example, the timing of things such as cash tax payments and UBS. Just overall timing of accounts payable those are things that can really change our the timing of our free cash flow, but for next year.

We have just another stellar I'm free cash flow performance baked into our guidance at 1.1 to 1.2 and were very we continue to be very proud of how we operate our business in that.

Many thanks.

Our next question is from line of Rod bourgeois deep dive equity. Please go ahead.

Hi, there and raw welcome Julie Julie I, just wanted to ask of a big picture question here.

Do you have any strategic changes or major priorities that you plan to implement as you take the home.

[noise], Rob you know, our our strategy starts with our clients and so we're going to continue to stay focused on our clients and so there's no change no major change in our strategy because.

A new CEO didnt change our clients so.

Got it and.

Is there is there anything significant happening in any of the verticals that may change the the vertical mix as you move into next year.

It looks like the range of of growth outcomes that you're getting across your verticals has narrowed some some of the really high performers has slowed and some of the weaker performers has improved so are the vertical performance is next year prone to be more.

More parity or could the spread widened.

Oh. Thanks, Rod. This is Casey I would say that in terms of or verticals and if you're yeah, obviously talking about our operating groups within our range of.

5% to 8%, we see that all of them have the ability to be within that range and certainly the opportunity exists also for some of them and I think of resources in particular to perform above that way.

Thank you next question is from line James Friedman.

Go ahead. Please go ahead.

First thank you for all of these incremental disclosures.

They are very helpful. The deal.

Observation about the diamond clients, the 100 million.

The composition of the growth.

It's all appreciated.

I just wanted to ask you briefly about the business dimension of strategy consulting so.

That dimension I'm looking at the bottom left corner, the Q4 prefer the purple grid.

Yes, so did the mid single digit growth.

For the Q4 do trend just below the flip side, which was high single digit growth for that dimension for the year.

And I know each quarter can be lumpy, but.

Any expectation about that staying here or potentially accelerating that's contemplated in the guidance would be helpful.

Yeah sure Hi, Jamie Thanks for the question you know in terms of our overall stretching consulting business as you mentioned in its its $14 billion is what we estimate that business has been and the fiscal year that we just closed 2019, it's a little bit less than or it's right around a third of our business and at that scale.

Yeah, we're really pleased when we have growth and mid to high single digits range and so for the year. We see there. It was high single digits for this quarter Q4, we saw that it was met but were happy when it's in the mid to high single digit ranch and as you mentioned it will add from quarter to quarter, but I think is important as Julie just picking up on some of things that really talked about.

You know as you know the consulting a strategy, it's a really important capability because that helps us drive value across the sweet not only in the role of delivering pure strategy and advisory work to clients to shape. The transformation agenda, but also to bring the entire full scope of Accentures trade transformation care.

And abilities, including technology industry, all at a global scale and as joint put Jolie put it on her examples as well as with our Sixtym clients. It over $100 million, we saw that really in evident this quarter as well. So it's a bit of adult purpose that we have and strategy in a consulting advisory work and we're really pleased.

With overall, our performance of the year performs in the quarter and we feel with the bookings that we had in Q4 6.1 billion, which isn't consulting type of work overall, but a portion of that obviously within consolidating a in strategy, we feel well positioned in this regard for fiscal 20.

Okay. Thanks, Casey and then I just wanted to ask about operations, so incredible double digit growth again.

Above company average, but the industry.

So.

Any I know you shared some are ready but.

Any texture there would be helpful. Can we keep that up and is that kind of within the guidance. Thank you.

Yes, so Jamie yes, we're really proud of what we've what Debbie and the team have been able to do an operations over the last years, where they continue to have double digit growth.

And for next year for operations, we do see that that will continue probably in maybe in the high single to the low double digit growth range is what we see it operations.

Yeah and just.

Maybe just take a minute to expand on why operations is so strategic for us and for our clients.

It really is for two reasons right. So first of all operations is a great and proven way to create value for our clients because it helps them reduce costs create more investment capacity, but you know the operations business today is very different than say, even five years ago because.

We have invested to bring it these great technologies to the platform, which we call synopsis and if youre, a CEO and you think about where do I want to build my own capabilities around artificial intelligence and emerging technologies do I want to do that in order to transform finance.

Or HR or the marketing backbone or do I want to do that in places that are going to truly differentiate me in terms of my products for example.

And the equation is often what why don't we go to Accenture that is built that platform. It's doing it across hundreds of clients with deep and long expertise in the enterprise and access that technology to transform how we're doing those functions. So that I can put my investment.

Into these other areas that are going to differentiate us in the market.

That is really helping drive the next wave of grope growth for operations, and we think thats going to be even more important as we see this enterprise wide transformation.

And on mix questions from the line of Jason Kupferberg.

Michael America. Please go ahead.

Hey, Good morning, guys can you just tell us how much M&A contribution you're expecting in the fiscal 2000 revenue growth and can we also just going to follow up comment on the tax rate with the increase in 20 is that the new normal we should be thinking about.

Our medium term just based on the phase in of the the talked about changes.

Yeah. Thanks, Thanks, Jason in terms of the contribution that we have assumed for F. Why 20 in our 5% to 8% guidance range, it's about 2% inorganic which is around the same as we landed at by 19, Yeah in terms of our tax rate, maybe again I will just answer that.

We are range is only up 50 basis points from where we started the year right and there are various things that can impact our tax rate throughout the year. So not really in a very different space from where we started last year, but you're right that this is.

Fytwenty, we have have faced in.

The U.S. tax or for provision that phased in over two years I'm. So yes, we do think that that's really where our rate will be fourth for this year I'm not going to guide to.

We don't guide to out years on our tax rate.

But now were we will then work our for other factors that can influence our tax rate overall, but we do have in 19 to 20, the second year phasing of the U.S. tax reform.

Sure on a on attrition I'm just to come back to that I know you guys aren't having any issue attracting talent that you want need but should we expect just in light of generally tight labor market, especially for digital talent that this kind of high teen ZIP code is just sort of a new normal.

Yes, So Jay said I don't think Theres anything that you should expect that's different than what you've seen I, you've followed us for long time than we've had the past. It does this you know we're in the higher teens to mid teens and attrition that's a level that historically, yeah. We feel we can manage and thats, how we build our business so theres nothing.

You should expect is very different and nothing that were.

Concerned about.

Okay, Great. Kevin we have time for one more question and then Julie will wrap up the call. Thank you and that questions from line up Lisa Please.

Moffettnathanson. Please go ahead.

Hi, Good morning, guys. A question on it outsourcing bookings again, just didn't follow up I think from conversions question that opening the call.

You know I know accenture of old, we'd always think of eccentric outsourcing business being heavily things like you know a ERP management and whatnot, but that is clearly not what it is now can you decompose a little bit when news what makes up a outsourcing at this point like is this like.

[noise] cloud demand that you know managing clouds on behalf of clients is there's a lot of like digital marketing ongoing management, just give a sense for like what's underneath there. Thank you.

Oh well Lisa.

It's interesting is that the breadth of what we do there is actually not different it's just how we're doing it. So for example, we're still doing application outsourcing, but we're doing it using Dev ops and agile and you know, it's something we call living systems, because it's a different way.

Hey of doing application outsourcing, that's allowing the application outsourcing that we do for our clients to help drive their business transformations, where we have of course, you know a 6 billion dollar business in operations and again the kinds of functions and that we're doing our similar oh.

We've added marketing and scaled marketing over the last couple of years, but again, it's how we're doing it right. It used to be about labor arbitrage 10 years ago, It's very very different now right and so the breadth in terms of the activities that we're going after has not changed what makes it so successful for us.

Is that we have evolved how we do it into you can see application outsourcing because of the techniques were using is now helping our clients you know get to things like agile and devops at scale and be able to help drive their business differently.

Terrific. Thanks, and then quick follow up for K C. On a guy one more guidance question can you, particularly what macro outlook for Two Q2 020 is embedded in the guidance and then yeah. Realizing it's still September or are you seeing enough visibility into budget outlooks and stuff for next year that you have you know.

At your feeling what's your confidence level around that macro outlook. Thank you.

Thanks, Lisa and as you mentioned you know this is obviously obvious pipe at the beginning of the year. This is our longest range of time that we're giving an outlook, but you know it with that as you know I, just we guided to 5% to 8% growth for next year and that contemplates a market that we see growing about the same as it has.

Done in 19, so for us for our addressable market, we think it's probably somewhere in that 3% to 4%.

Range overall for next year.

So ah thanks again for joining us on today's call Casey and I am the entire team are extremely pleased with our excellent performance for fiscal 19.

We see significant opportunity ahead, and we are laser focused on delivering value for all of our stakeholders.

And let me say end by thanking our stakeholders thinking our clients for placing their trust in us.

Our investors for their continued confidence our ecosystem partners for their shared commitment to our clients are exceptional leadership team and finally all of our people around the world you are what makes accenture So special.

Hey, everyone on the road thanks.

Thank you, ladies and gentlemen that does conclude your conference. We do thank you for joining and for use in 18 <unk> Executive teleconference. You may now disconnect.

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