ACN
#Thank you, <UNK>, and thanks, everyone, for joining us today.
We had an excellent first quarter, and I'm extremely pleased with our results.
We delivered strong and broad-based revenue growth across all dimensions of our business and gained significant market share once again.
Our strategy continues to differentiate Accenture in the marketplace.
And we are seeing very strong demand for our services, particularly in digital, cloud and security.
Here are a few highlights for the quarter.
We delivered very strong new bookings of $10 billion.
We generated revenues of $9.5 billion with 10% growth in local currency.
We delivered very strong earnings per share of $1.79, a 13% increase.
Operating margin was 15.6% consistent with the first quarter last year.
We generated strong free cash flow of nearly $900 million.
And we returned more than $1.4 billion in cash to shareholders through share repurchases and dividends.
So we are off to a strong start in fiscal year '18, and I feel very good about the continued momentum in our business.
Now let me hand over to <UNK>, who will review the numbers in greater detail.
<UNK>, over to you.
Thank you, <UNK>.
Happy holidays to all of you, and thanks so much for joining us on today\
Thank you, <UNK>.
Our very strong results in the first quarter demonstrate that we continue to execute our strategy very well and are clearly benefiting from the substantial investments we have made to build differentiated services and further enhance our competitiveness.
I am especially pleased with our continued rotation to "the New" digital, cloud and security, which, again, grew at a very strong double-digit rate this quarter.
We have been particularly successful with Accenture Digital, nearly tripling the annual revenue from this business since we launched it 4 years ago.
And we have expanded our capabilities to help our clients with their digital transformations.
Now given the increasing importance of artificial intelligence, automation, machine learning and other innovative technologies, we are evolving Accenture Digital to be even more relevant to our clients and drive even greater differentiation in the marketplace.
Going forward, Accenture Digital will be focused on 3 big areas: Accenture Interactive, Accenture Industry X.
0, and Accenture Applied Intelligence.
Let me bring this to life for you.
We\
Thank you, <UNK>.
Let me now turn to our business outlook.
For the second quarter of fiscal '18, we expect revenues to be in the range of $9.15 billion to $9.4 billion.
This assumes the impact of FX will be about positive 4.5% compared to the second quarter of fiscal '17 and reflects an estimated 6% to 9% growth in local currency.
For the full fiscal year '18, based upon how the rates have been trending over the last few weeks, we now assume the impact of FX on our results in U.S. dollars will be positive 2.5% compared to fiscal '17.
For the full fiscal '18, we now expect our net revenues to be in the range of 6% to 8% growth in local currency over fiscal '17.
For operating margin, we continue to expect fiscal '18 to be 14.9% to 15.1%, a 10 basis point to 30 basis point expansion over adjusted fiscal '17 results.
We now expect our annual effective tax rate to be in the range of 22% to 24%.
This range does not include the impact from the U.S. tax legislation.
Before I move on, let me add some additional comments on our view of the new tax legislation.
Our current assessment is that we do expect to record a noncash expense in fiscal '18, which could be up to $500 million, to reflect the impact of lower tax rates on our U.S. deferred tax assets.
Beyond this expense, we expect the impact to our fiscal '18 tax rate to be minimal.
For earnings per share, adjusting for the updated net revenues, FX and tax assumptions, we now expect full year diluted EPS for fiscal '18 to be in the range of $6.48 to $6.66 or 10% to 13% growth over adjusted fiscal '17 results.
For the full fiscal '18, we continue to expect operating cash flow to be in the range of $5 billion to $5.3 billion, property and equipment additions to be approximately $600 million and free cash flow to be in the range of $4.4 billion to $4.7 billion.
Finally, we continue to expect to return at least $4.3 billion through dividends and share repurchases, and also continue to expect to reduce the weighted average diluted shares outstanding by about 1% as we remain committed to returning a substantial portion of our cash to our shareholders.
With that said, let's open it up so that we can take your questions.
<UNK>.
Yes.
I mean, let me start by saying that we are very, very pleased with our Consulting bookings, obviously, in the first quarter.
We do see good momentum in the business.
We're pleased with our pipeline.
And in fact, if you look at our bookings, overall, we expect to have another strong bookings quarter in quarter 2.
So if you look at momentum, really, broadly across our business, including Consulting, but not limited to, Consulting, we're very, very positive.
Perhaps your question really was getting at, therefore, why didn't we raise guidance further perhaps.
And on one hand, we have a lot of reasons to be optimistic.
We see ---+ clearly see momentum in our business and ---+ but on the other hand, it's just 1 quarter in the books.
And as we normally do, we want to have a little bit more visibility to the full year before we significantly change guidance.
We feel, obviously, very comfortable, with taking the low end of the previous guided range off the table.
And we're ---+ we will see where we end in quarter 2.
And at that point, we will reevaluate the upper end of the range.
But overall, very comfortable with our business and feel very good about the momentum.
Okay.
Thanks, <UNK>.
For the full year, our view of acquisitions hasn\
Let me make a comment or two, and then <UNK> may want to add some comments or not depending on what I say.
So first of all, let me just remind you, when we had this discussion last year, we noted for the group that all of our businesses are subject to going through ebbs and flows and cycles.
We commented on the fact that in fiscal \
Yes, sure.
Complementing just what you said, I clearly see 3 main drivers for our Strategy and Consulting growth.
I think, of course, the number one is pretty obvious is, there is a strong and stronger demand around digital strategies and digital transformations in all industries and across the world, I mean, number two, there is still the same appetite today for rationalization.
You know our thesis around the evolution of industries, digitalization is on one hand, rationalization on the other hand.
In terms of rationalization as an illustration, we have great success with our, what we\
The primary driver of our growth in the quarter continues to be "the New".
So the big story continues to be underpinning that 10% is just very, very strong growth in "the New".
Yes.
Thanks, <UNK>, for your question.
And indeed, I\
Yes, I mean, as I said, I don't think there's anything particular to point out on our free cash flow guidance.
The first quarter played out pretty much exactly as we had expected.
It's typical that we have an uptick in DSO in the first quarter from the fourth quarter and that played out as expected in the range that we had expected.
And we continue to track well for our free cash flow for the full year.
Again, one of the things that you know, <UNK>, we comment on is the relationship between free cash flow and net income.
And our free cash flow range continues to indicate that we have a model where the free cash flow exceeds our net income.
So we feel very good about it.
I mean, we've ---+ we work hard every day on DSOs and other aspect of our cash flow to try to land as high in the range as possible.
But we feel good about the range that we started here with and reconfirmed just a few minutes ago.
Yes, I mean, very pleased to comment on this.
I mean, first, what we\
And if I could just add ---+ let me just add one comment just on the quantitative side.
And call out that our revenues in "the New" now represent approximately 55% of our total revenue stream.
One of the things that <UNK> and I were looking at yesterday is ---+ and of course, we have been managing this for many quarters now is just how pervasive that is across our business.
I mean, literally every industry, every geographic market, you see a level of rotation to "the New" that is, let\
No doubt the digital projects are getting bigger.
And they are getting bigger just consistent with the transition as mentioned before.
We have this phase where clients are investing in smaller projects that qualified in term of prototyping or proof-of-concept type of project.
You are testing the thing.
Now we passed that phase where we have evidence that the digital transformation is driving growth and value for the different industries and clients are shifting to industrialize the digital capabilities.
You've seen more and more the creation of what we are calling ---+ or clients are calling, digital factories, digital hub.
That's exactly what we're doing with Schneider Electric, illustrated a few minutes ago.
So the projects are getting bigger in average as digital technologies are maturing and are scaling.
So it's a very good trend.
And of course, it is supporting our double-digit growth in digital-related services.
Okay, great.
Very good question.
So first of all, it's ---+ I think you started with ---+ let me just, again, say that our operating margin can, in fact, vary quarter-to-quarter.
That's the typical pattern in our business for a variety of reasons.
Let me also reiterate that irrespective of what our margin was in quarter 1, which we were pleased with, we feel very comfortable that we're on the trajectory of delivering 10 basis points to 30 basis points of expansion for the full year while also meeting on our management objective, which is to invest at significantly higher levels than the rate of our revenue growth and then covering that by real underlying expansion in our margin.
As it relates to quarter 1, there are probably two or three things that I would point out, none of which are too much of a surprise in terms of the normal flow of our business.
The first thing I would highlight is that quarter 1 of last year was an extremely strong quarter for us.
You may remember, <UNK>, that quarter 1 of last year, we reported 40 basis points of expansion.
And so some of what you're seeing in our first quarter result is compared against a very strong quarter last year.
I think, if I was to just point two other things in our results in the first quarter, one thing is, as you alluded to and I confirmed, we did have a very high level of investments flow through our P&L in the first quarter, which I think you and others would expect, given many reasons, including the $1.7 billion of acquisitions that we invested in last year.
And I would say, in general, our investments are probably on balance higher in the first half of the year this year than the second half of the year.
The other thing that we called out is that we did see some of our operating groups had lower consulting contract profitability.
But again, as you know us well, our contract profitability ebbs and flows at different points in time in our business.
And we expect that consulting contract profitability improves as we progress through the year.
So those are some things, I would say, the tough ---+ the higher compares.
So really I would say we delivered a consistent level of very high profitability that we reported quarter 1 last year, and the rate of investment growth was much higher than the rate of revenue growth.
Yes.
I mean, we have had ---+ we track this every quarter and, frankly, we have an amazing level of consistency in the sole-source deals as a percentage of the total.
It continues to run in the range of about 70%.
So really, <UNK>, we've seen ---+ we haven't seen a significant change in that pattern.
<UNK> ---+ I think, <UNK>, you wanted to add something.
Yes.
I'm going to give some color on this because you're giving me the opportunity to give you an information we didn't mention in the script.
And when you talk about sole-source, I think it does relate to the quality and the deepness of the trusted relationships we have developed with our clients over many, many years.
And I am very pleased to share with all this group that we have now 169 diamond clients.
I am mentioning this number because many of you, you know how important are these diamond clients in the Accenture Strategy, including in the economic model.
It's a record high of diamond clients at Accenture, 169, including the best brands across all the world.
And the deepness and the kind of relationship we've been developing for many, many years are as well driving this sole-source project because sole-sourced project are directly correlated to the trust and the confidence our clients are putting in Accenture.
I mean, I couldn't be more pleased to comment on Accenture Interactive, which I would qualify as the darling of Accenture.
And I want to take this opportunity to recognize <UNK> Whipple for the amazing job he has been doing in providing leadership on Accenture Interactive.
And Accenture Interactive has been creating not long ago and, as you know, for 2 years in the row, we've been around as the leading company in digital marketing, but advertising [age] in term of size, in term of growth, we have an amazing momentum.
I was very pleased to announce in my presentation that we're now the agency of record for Maserati.
It means something for us because it means that indeed we are now a key player in the agency world.
We are gaining massive market share.
We are becoming certainly a leader in digital marketing solutions.
And we have 3 major segments so far in Accenture Interactive, all the digital design was filled, all the digital content production.
And you remember that some years ago we acquired a company called avVenta being the basis for that.
And in all commerce, e-commerce solutions with Acquity, you remember the acquisition we made in the U.S., and very pleased with the acquisition of Altima we made in France as well, which is going to boost our equity ---+ digital equity business.
And we are adding now this intelligent marketing campaign, where we're going to use analytics and artificial intelligence.
So that's the kind of fourth growth engine we are adding in Accenture Interactive.
And so I am extremely comfortable that we will continue to gain market share and to grow significantly with Accenture Interactive.
And I am very pleased by the way that to lead our intelligent marketing campaign, we're going to welcome a very prominent and iconic leader from the industry, Nikki Mendon\xe7a, who is going to join Accenture soon to lead that business.
I couldn't be more pleased.
It's a good question.
So let me start by ---+ I'm going to talk for <UNK> on this because <UNK> has got a very strong point of view on the topic, and always telling me that the big transaction in professional services failed at 100%, which is quite a significant percentage, if you will.
So are we going to see that.
I don't know.
This is not our game at Accenture.
Our game is to drive organic growth on top of acquisition of very specific companies with very specific and differentiated capabilities.
And then what Accenture is offering to these companies we're acquiring is our unique access to the best brand in the world and our unique geographic footprint.
That's the combo we're bringing.
You imagine when these companies are joining Accenture with access to 169 diamond clients, the best brands in the world.
So I tend to trust <UNK>, I always trust <UNK>, 100% of the big transaction in professional services and consolidation failed.
I always trust <UNK>.
He is the best (inaudible) of the industry.
What I can share with you is indeed our view on these platforms market.
As you know, we are working with all the major players in the ecosystem.
I am thinking about SAP, Oracle, Microsoft, salesforce.com, Workday, to mention a few.
If you take what probably you would call the legacy players and not the ---+ I mean the cloud natives, such as salesforce.com and Workday, they had a kind of period, especially SAP and Oracle, of pause where they were facing this transition from on-premise to cloud-enabled platforms.
And then what you\
No, I [couldn't] mention.
I mean, you ---+ there are many analysts who have been providing information as well you are driving CIO surveys, and they are all very consistent that the budget would increase with shift from legacy to digital.
That for me ---+ I mean to be honest with $10 billion bookings in Q1, it would [hard not to] (inaudible) the demand out there.
Yes.
So just, I guess, reconfirm to ensure I was clear in the remarks I made in the script.
Again, we expect our tax rate this year, again, to be in the 22% to 24% range and that does not include the impact of the U.S. tax legislation.
Again, our current assessment is that the impact on the effective tax rate will be minimal other than a noncash expense for fiscal '18, which could be up to $500 million, which reflects the impact of lower tax rates on our U.S. deferred tax assets.
I didn't say it in the script, but let me also add that we do not expect an impact on our tax cash payments this year.
So having said that, over time on an ongoing basis, the legislation could modestly impact our ongoing effective tax rate by imposing taxes on our intercompany transactions and limiting our ability to deduct certain expenses.
And so the specific answer to your question beyond what I said about '18 is that on ongoing basis, we think it could modestly impact our ongoing effective tax rate and essentially you've got the lower rate which is, let's say, offset essentially or closely offset by the loss of certain deductions.
And then the other thing in the mix as well is the tax imposed on intercompany transactions.
But in the mix, we see a modest impact over time.
I would say more likely a modest upward pressure than downward.
I would say that the ---+ I wouldn't ---+ I understand that if you just look at it purely numerically, you would say that we're ---+ we have a lower rate of acquisitions.
I wouldn't say that ---+ what I would say is that this year's estimate of 1.1 to 1.4 is entirely consistent with our strategic objective.
It just so happens that last year the nature of the opportunities in the marketplace was such that we went above what would be our typical strategic range.
That could happen at any time in the future.
And so it's not a slowdown as much as it was last year.
It was just above our strategic range, and this year we're guiding at 1.1 to 1.4, which is right consistent with our strategic objective, and we'll see how the year plays out.
All right, I think it's time, right <UNK>, to wrap up the call.
Thanks, again, for joining us on today's call.
So in closing, and with the first quarter now behind us, as you probably heard from <UNK> and I, we feel very good about where we are.
And I'm personally confident that we are very well positioned to continue gaining market share, driving profitable growth and delivering value for both our clients and all our stakeholders.
I want to wish you, our investors and analysts, and everyone at Accenture a very happy holiday season and all the best for the New Year.
We look forward to talking with you again next quarter.
In the meantime, if you have any questions, as always, please feel free to call <UNK> and the team.
All the best.
Happy New Year.
I'll talk to you next year.
