Accenture - Earnings Call - Q4 2011

Transcript

Speaker 3

Director of Investor Relations, please go ahead.

Speaker 2

Thank you, Kathy, and thanks everyone for joining us today on our fourth quarter and full-year fiscal 2011 earnings announcement. As Kathy just mentioned, I'm KC McClure, Managing Director of Investor Relations. With me today are Pierre Nanterme, our Chief Executive Officer, and Pamela Craig, our Chief Financial Officer. We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Pierre will begin with an overview of our results. Pam will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for both the fourth quarter and the full year. Pierre will then provide a brief update on our marketing position and progress against our growth strategy. Pam will then provide our business outlook for the first quarter and full fiscal year 2012.

We will take your questions before Pierre provides a wrap-up at the end of the call. As a reminder, when we discuss revenues during today's call, we're talking about revenues before reimbursements or net revenues. Some of the matters we'll discuss on this call are forward-looking, and you should keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, general economic conditions and those factors set forth in today's news release and discussed under the Risk Factors section of our annual report on Form 10-K and other SEC filings. During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors.

We include reconciliations of those measures where appropriate to GAAP in our news release or on the Investor Relations section of our website at accenture.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to Pierre.

Speaker 0

Thank you, KC, and thanks everyone for joining us. It's a pleasure to be here today to present our excellent results for Q4 and the full fiscal year. I'm extremely pleased to report that we met or exceeded our business outlook for all of our key metrics, from revenues and bookings to profitability and cash flow. Here are a few highlights. We delivered record new bookings of $8.4 billion for the quarter and $28.8 billion for the year. Revenues for the quarter increased 14% in local currency, share repurchases, and dividend payments during the year. We just announced a semi-annual cash dividend of $67.50 per share, which is a 50% increase over our prior dividend. Clearly, we are executing and delivering extremely well across all dimensions of our business. Now, Pam will review the numbers in greater detail. Pam, over to you.

Speaker 2

Thank you, Pierre. Thank you all for joining today. I am pleased to tell you more about Accenture's fiscal year 2011 fourth quarter and full-year financial results. As Pierre just said, we delivered records across the board, including very strong year-over-year revenue growth across the dimensions of our business overall in the fourth quarter and for the full fiscal year. In addition to the strong earnings results, which reflected the highest annual EPS we've ever achieved, we also met or beat all of the elements in our original fiscal year 2011 annual business outlook a year ago, including records for new bookings, free cash flow, and operating margin. As we look ahead into fiscal 2012, we are pleased with our progress in building market share and with how we are positioned to drive our business forward.

Unless I state otherwise, all figures are GAAP except the items that are not part of the financial statements or that are calculations. New bookings for the fourth quarter were a record $8.4 billion and reflect a positive 9% foreign exchange impact compared with new bookings in the fourth quarter last year. Consulting bookings were a record $4.2 billion and represented a book-to-bill of $1.1. Outsourcing bookings were $4.3 billion, the highest in over seven years. New bookings for the full fiscal year were also a record at $28.8 billion, above the upper end we signaled in June of the $25 to $28 billion range that we had all year. These bookings reflect a foreign exchange impact that turned out to be 400 basis points better than we originally assumed a year ago, positive 3% compared with new bookings for fiscal 2010.

Consulting bookings for fiscal 2011 were $15.4 billion, and outsourcing bookings were $13.4 billion. Now, let me give you some detail on these record-high bookings in the fourth quarter. In management consulting, bookings reflect client demand for our services to optimize their top-line growth and drive operational efficiency. Demand continues for improving sales and marketing effectiveness to support our clients' growth strategies. We see strong activity for product. Remains strong as our clients continue to focus on reducing the costs of their legacy systems and on consolidating the number of IT vendors they use. Through our continuously improving global delivery network, we are better and better equipped to respond to client needs for both complex and cost-effective delivery. At many of our clients, we are expanding our relationships into more longer-term committed relationships for maintenance, development, and enhancements.

BPO bookings in Q4 were very strong and the highest in 12 quarters, as we have growing demand for both horizontal offerings in finance and accounting and procurement, aided in part by our Ariba Sourcing acquisition earlier in the year, as well as industry-specific offerings in Resources, Communications, and high tech, and Health & Public Service. In summary, we had a bookings quarter that was strong across both consulting and outsourcing, with $100 million or more in bookings at 10 clients around the world. Now, turning to revenues. Net revenues for the fourth quarter were $6.7 billion, an increase of 23% in U.S. dollars and 14% in local currency from the same period last year, reflecting a foreign exchange impact of positive 9%. These revenues were above our guided range of $6.4 to $6.6 billion, a range that had assumed a foreign exchange impact of positive 8%.

Adjusting for actual exchange rates, we were about $40 million higher than the top end of the range we provided in June. Consulting revenues for the quarter were $3.9 billion, an increase of 25% in U.S. dollars and 16% in local currency. Outsourcing revenues were $2.8 billion, an increase of 21% in U.S. dollars and 13% in local currency. Net revenues for the full fiscal year were $25.5 billion, an increase of 18% in U.S. dollars and 15% in local currency. Consulting revenues for the full year were $14.9 billion, an increase of 21% in U.S. dollars and 17% in local currency. Outsourcing revenues were $10.6 billion, an increase of 15% in U.S. dollars and 13% in local currency. We saw revenue growth across all of our operating groups in the fourth quarter. Resources revenues grew 18% in local currency.

This revenue growth was driven by ERP and global operating model programs in many parts of the globe, with particularly high growth in our priority emerging geographic markets. Revenue growth was primarily driven by consulting, with outsourcing revenue growth lower. This trend is expected to continue for the near term. The Products operating group had local currency revenue growth of 16%. Consulting revenues reflect a focus on operational effectiveness, improving customer service, and supporting the launch of new products and services. I would also like to note that on September 1, we renamed this operating group, Communications, Media & Technology. The three industries that make up the operating group, Communications, Media & Technology, remain the same. Finally, Health & Public Service revenues increased 12%, driven by strong growth in our health offerings, including health administration and electronic medical records.

Our growth in H&PS overall was also positively impacted by better delivery efficiency compared to last year. As we have mentioned in previous quarters, our repositioning in public service continues to progress. I'm extremely pleased with the net revenue results we stepped up and delivered in fiscal 2011. Moving down the income statement, let me run through the components of operating income. For the fourth quarter, gross margin was 33.1% compared with 34% in the same period last year, a decrease of 90 basis points. Gross margin for the full year was 32.9% compared with 33.6% in fiscal 2010, a decrease of 70 basis points. Sales and marketing costs for the fourth quarter were $821 million, or 12.3% of net revenues, compared with $698 million, or 12.9% of net revenues in the same period last year, a decrease of 60 basis points.

Sales and marketing costs for the full year were $3.1 billion, or 12.1% of net revenues, compared with $2.7 billion, or 12.3% of net revenues in fiscal 2010, a decrease of 20 basis points. General and administrative costs for the fourth quarter were $472 million, or 7.1% of net revenues, compared with $433 million, or 8% of net revenues in the same period last year, a decrease of 90 basis points. G&A costs for the full year were $1.8 billion, or 7.1% of net revenues, compared with $1.7 billion, or 7.7% of net revenues in fiscal 2010, a decrease of 60 basis points. This all resulted in operating income for the fourth quarter of $923 million, reflecting a 13.8% operating margin compared with $714 million, or 13.2% operating margin for the same period last year, a 60 basis point expansion.

I was pleased with the profitability delivered in the fourth quarter and note particularly the improved profitability in Products. Full-year operating income of $3.5 billion reflected a 13.6% operating margin compared with $2.9 billion, or a 13.5% operating margin for fiscal 2010, and within our guided range for operating margin of 13.6% to 13.7%. Diluted earnings per share for the quarter were $0.91 compared with $0.66 in the same period last year, an increase of 38%. The $0.25 increase is made up of $0.14 from higher revenue and operating income in local currency, $0.06 from favorable foreign exchange rates, $0.02 from a lower effective income tax rate, $0.02 from a lower share count, and $0.01 from higher non-operating income.

For the full fiscal year, diluted EPS were $3.40 compared with $2.66 in fiscal 2010, an increase of 28% and at the top end of our guided range of $3.36 to $3.40. The $0.74 increase is made up of $0.42 from higher revenue and operating income in local currency, $0.11 from a lower share count, $0.09 from a lower effective income tax rate, $0.08 from favorable foreign exchange rates, and $0.04 from higher non-operating income. Turning to some other key operational metrics, we hired 70,000 people in fiscal 2011 and ended the year with a global headcount of about 236,000 people. Our global delivery network grew from 116,000 people at the beginning of the fiscal year to 141,000 people at the end. In Q4, our utilization was 85%, flat with Q3 and in line with our targeted level. Attrition, which excludes involuntary terminations, was 14% compared with 15% in Q3.

Now, let's touch on our cash flow. Free cash flow for the quarter was a record $1.24 billion, an increase of $90 million over the same period last year, resulting from cash from operating activities of $1.38 billion, net of property and equipment additions of $137 million. For the full fiscal year, free cash flow of $3.04 billion was also a record high and about $340 million above the top end of our previously guided range, as DSOs were better than we expected. This reflected cash from operating activities of $3.44 billion, net of property and equipment additions of $404 million. Turning to DSOs, our days sales outstanding was 30 days, down from 32 days in the third quarter and flat with the end of last fiscal year. This metric continues to reflect the strong financial discipline of our people around the world.

Turning to cash, our cash balance at August 31 was $5.7 billion compared with $4.8 billion. During this time, we have also seen our public float increase from 14% of outstanding shares at IPO to approximately 90% today. Earlier today, we announced that our board of directors declared a semi-annual cash dividend of $67.50 per share. This dividend will be paid on November 15, 2011, and represents a $22.50 per share, or a 50% increase over the previous semi-annual dividend we declared in March. In addition, the board has increased our share repurchase authority by $5 billion. That authority now totals approximately $6 billion. In summary, we had a strong quarter and ended the year in many ways above where we expected. I am very proud of Accenture people and their extraordinary ability to drive our business in a way that serves both our clients and our shareholders so well.

Lastly, I'd just like to mention that we were also pleased to see that we were added to the S&P 500 index on July 5. Now, let me turn the call back to Pierre to give you an update on some key aspects of our growth strategy.

Speaker 0

Thank you, Pam. Our strong results for the quarter and the full year demonstrate that we are executing the right growth strategy, a strategy that resonates with our clients. We are operating at the heart of our clients' business and are delivering unique value propositions that are built on strong business cases. Our focus continues to be on driving sustainable and profitable growth through industry differentiation, technology leadership, and geographic expansion. We continue to grow our portfolio of diamond clients, both the number of diamond clients and the amount and scope of work we are doing for them in mature and emerging markets. This focus is bringing even greater depth and breadth to our business. We are serving clients in more than 40 industries and continue to invest in industry differentiation.

To accelerate the execution of our growth strategy, we have prioritized our investments around specific industries where we see opportunity for even greater return. Last quarter, I mentioned our focus on the health sector. This quarter, I'm delighted to share the progress we're making in insurance and banking, where we recently announced two acquisitions. The acquisition of DocQuick Technologies, a leading provider of software, helping one of the largest online retailers improve user interaction and increase conversion rates to grow sales volume. In SmartGrade, we now have more than 100 projects delivered or underway in over 20 countries. We continue to extend our cloud capabilities and are seeing increased demand for software as a service. As a client in the energy management industry, we're doing one of the largest global software as a service implementations involving work in 70 countries and almost 20,000 users.

Geographic expansion is another key area of focus. In fiscal year 2011, we made good progress, growing revenues in our 10 priority emerging markets by 30% in local currency to $3 billion. We are very pleased with this result and intend to build further on this success in fiscal year 2012. We continue to run Accenture as a high-performance business, managing the company with rigor and discipline. We remain focused on pulling all the levers, including improving sales efficiency, optimizing utilization, carefully managing G&A, and lowering our cost to serve by further leveraging our global delivery network. Of course, we are carefully watching the macroeconomic environment. Clearly, there is more volatility and uncertainty in the global economy, as governments, primarily in the U.S. and Europe, continue to work to solve the deficit and debt issues they are facing.

At the same time, the long-term trends that we previously identified, challenges of globalization, increased regulation, and the need for operational efficiency are even more prevalent today than they were a few months ago. Our clients continue to take steps to adjust to this new environment, and this continues to drive demand for our services. With that, I will turn it back over to Pam, who will provide our business outlook for fiscal year 2012.

Speaker 2

Thank you, Pierre. To tee up our fiscal year 2012 business outlooks, I'd like to first share with you some of our thoughts on how we see this fiscal year shaping up. We believe, as Pierre just shared, that our strategy and our proven ability to serve our clients' needs, combined with critical business and technology trends, position us very well as we move forward. With that said, we recognize that global macroeconomic risks have increased and global growth has slowed in the last few months. This is not lost on us. As you expect of us, we remain vigilant about understanding any impacts. Fiscal year, we continue to expect net revenue to grow in a range of 7% to 10% in local currency over fiscal 2011.

Although there have been puts and takes over the past five months, this is consistent with what we stated at our Investor and Analyst Conference on April 14 and confirmed last quarter. For the full fiscal year 2012, we are targeting new bookings to be in the range of $28 billion to $31 billion. As you know, our bookings can be lumpy from quarter to quarter. In fiscal year 2012, we expect operating margin to be in a range of 13.7% to 13.9%, a 10 to 30 basis point expansion. We will continue to balance profitability with making investments to position our business for the future. You should expect some fluctuations quarter to quarter, as you've seen in the past. We expect our annual effective tax rate to be in the range of 27% to 28%.

For earnings per share, we expect full-year diluted EPS for fiscal 2012 to be in the range of $3.80 to $3.88, or 12% to 14% growth, consistent with what we stated at our April Investor and Analyst Conference of at least 12% growth. Now, let's turn to cash flow. For the full fiscal year, we expect operating cash flow to be in the range of $3.6 billion to $3.9 billion, property and equipment additions to be $490 million, and free cash flow to be in the range of $3.1 billion to $3.4 billion. To update you on our thinking for uses of cash, we are on course to continue our strategy this fiscal year. We will continue pursuing strategic and targeted acquisitions as a part of our growth strategy. We also remain committed to return a substantial portion of the cash we generate to shareholders.

In fiscal 2012, we now expect to return at least $3 billion through a raised dividend and through share repurchases, and also now expect to reduce the weighted average of shares outstanding by approximately 3%. In closing, we know we need to stay very close to what generates value for money for our clients. In doing so, we will be focused on doing what we do best: drive profitable growth for Accenture, provide valuable work for our people, maintain our strong balance sheet, and generate significant free cash flow, a substantial portion of which we would then expect to return to shareholders. With that, let's open it up so that Pierre and I can take your questions.

Speaker 1

Thank you.

Speaker 2

First of all, as you might imagine, we were very pleased with the bookings. Regarding consulting, you may recall last quarter, we did expect them to tick up a bit in terms of the book-to-bill, and they did. That was good. I think the outsourcing has just been building and coming on stronger each quarter. Most of those deals over $100 million that we had were in outsourcing, and we saw a book-to-bill there of $1.5. The Nokia deal was indeed in the quarter, but we don't comment specifically on that.

Speaker 1

OK. Do you expect the bookings trend in the November quarter to be a little less strong because potentially not as helped by kind of chunky bookings items?

Speaker 2

I think we do expect that they'll sort of build throughout the year, lumpy, but do that similar to the way they did in fiscal 2011. Yeah, you know, potentially a little lighter.

Speaker 1

OK, great. The follow-up question is really just about what's happening in the demand environment as you look forward. I mean, clearly, with your guidance, you're feeling comfortable with where things are. I guess the question is, are you seeing any early signs of economic stress starting to affect demand patterns? Are you seeing any delays in decision-making, any projects being delayed? Are you seeing priorities at clients shifting from growth or development towards maintenance and cost takeout? Just to give us a gauge of whether there might be early signs of the economy starting to affect the demand patterns at all.

Speaker 0

Hello, Rod. This is Pierre here. As we speak today, we have multiple conversations every day with our clients. We do not see such things happening. We have very good discussions. Clients are very well aware of what's happening outside. Indeed, they continue to think about how they're going to transform their operation to be more effective in the current environment. The trends we've been talking about these last quarters are still there outside, and we continue to see our clients investing.

Speaker 1

OK, great. Just finally, as a clarification, I mean, your growth rate in the U.S. is remaining much stronger than in EMEA. Would you expect that to continue in fiscal 2012?

Speaker 2

Yeah. I mean, the growth rate that we provided for the Americas represented or reflected strength in the U.S., in Brazil, and in Canada, all over. As we sit here today, we have roughly 13% more contracted revenue in place at this time this year versus last year. That's based on strength in outsourcing. I think that it's the predictability in the second half of the year, given the macroeconomic uncertainty, especially in Europe, right? That's what we're thinking about.

Speaker 0

Yeah.

Speaker 2

That's really, and yes, calendar year budgets will kick in. The visibility that we have right now is very good based on sort of the first few months, which especially affect consulting.

Speaker 0

OK. That would explain kind of the back half implied growth versus what you're expecting, at least implied by the $6.8 to $7 billion. The tougher comps, as you think about those in the back half of fiscal 2011, comparing those to the back half of fiscal 2012, will partly explain it. Clearly, at this point, it just seems like there's some element of that is just slower visibility as you really grow over into the second half of your fiscal 2012. Is there anything beyond that to think about there?

Speaker 2

No, I think that's fair.

Speaker 0

OK, great. Thanks, guys.

Speaker 3

Thank you. Due to time constraints, we ask that you please limit yourself to one question and one follow-up. We'll go next to Moshe Khatri with TD Cowen.

Speaker 1

Hey, thanks. Nice quarter. Pierre, could you talk a bit about what you're seeing out there, specifically in the UK and continental Europe? Going back to some of the discussions that you're having with your customers, maybe talk about what's driving demand and what are some of the concerns that you may have in terms of looking at those territories.

Speaker 0

Yeah, thanks, Moshe, for the question. Of course, we all know that Europe is, as we speak, probably challenged, I would say, with the global economic environment, but more specifically with, of course, the sovereign debt. We know as well that all the governments are working extremely hard as we speak to find the right solution. We expect that indeed they're going to find the right solution, and we can move forward. Now, if you look at Europe, you have very different countries in different situations. I think the north of Europe is remaining strong, including Germany, and you have a good momentum in those economies. Even France is doing well. If you look at all Europe, they are planning anything between 1% to 2% growth. That kind of growth is probably what Europe has been experiencing these last years.

To some extent, there is nothing really new in that part of the world who's been operating on slower economic growth for years. Now, if you look at our clients, our clients are the largest and more global organizations.

Speaker 2

have that many details on that. Just in terms of, I would expect it to be similar.

Speaker 0

Great. Thanks.

Speaker 3

Question is from Keith Bachman with Bank of America.

Speaker 1

Hi, Pam. I wanted to ask a similar question on hiring, if I could. If you think about any pockets of hiring, so to speak, in other words, where do you anticipate hiring in terms of, I know you just mentioned the global delivery network, but in terms of consulting versus some of the outsourcing areas, if any kind of categorization you could give us on where the hiring will be targeted. The follow-up is just on the financial services. It looked to be down a little bit sequentially. I was just wondering if you could help us think about financial services growth within the context of the guidance you provided, both for the quarter and the year. Thanks.

Speaker 2

OK, great. Two separate questions. I think just in terms of recruiting, there's really nothing to point out there specifically. I mean, we're matching supply and demand for our business around the world, both locally and in the global delivery network. There's really not too much more color to add there. In terms of financial services, we do have our eye on the consulting part of financial services in Europe, probably for obvious reasons, just in terms of what's going on there. We have a lot of critical transformational work going on with those clients, as Pierre Nanterme talked about. We may see a little, just slight cutback in some other consulting work. That is reflected in the Q4 results and also in our outlook.

Speaker 3

Is that all, Mr. Bachman?

Speaker 0

Yes, thank you.

Speaker 2

I think those were the two questions.

Speaker 3

Kathy, we can take those next.

Speaker 1

Next.

Speaker 3

OK, thank you. We have Nathan Rosoff with Morgan Stanley.

Speaker 1

Hi, thanks for taking my questions.

Speaker 2

Hi, Nathan.

Speaker 1

Hey, first up, I just wanted to ask about the pipeline, more the velocity of deals kind of entering and moving through the pipeline. I mean, clearly, deals are still coming out in a very strong manner. Have you seen any change in the pace of new deals entering the pipeline or the speed with which you're able to convert kind of new prospects into wins?

Speaker 2

Yeah, I mean, I think we, of course, look at that, and we look at the pipeline every which way. The average days of the opportunities are in the pipeline.

Speaker 1

I just want to go back to revenues. You're obviously keeping the 7% to 10% revenue growth as we expected. There is considerable investor skepticism. Is it possible to parse out in a little bit more detail some of the sources of growth, such as maybe globalization or how much of FY 2011 bookings might flow through? What are you assuming for project activity, maybe?

Speaker 0

Yes, I will answer the question and add maybe more color as required. Overall, we are entering this year in a position of strength, as we mentioned before. We're pleased with the backlog we have. We are pleased with the level of the pipeline. We have good activity. As we speak, we've not seen any change in the client's behavior. When we look at the business, we can see growth in most of the dimensions of our business, if you will. Most of the industries we are working with are on massive transformation for all sorts of good and valid reasons. We mentioned financial services. We all know what's happening in that industry. You have all the new imperatives created with the Basel III, Solvency II, and they need to change their operating model in the way which is more structural now than tactical in the past.

What I'm saying for financial services is true across the patch in all the industries. When you look at this from a geographic standpoint, of course, we are very pleased with our growth in our priority emerging markets, where we see as well more opportunities moving forward. We are accelerating our growth in those markets. We continue to see good potential in the more mature economies, as the need for transformation for all those big waves of globalization, regulation, more efficiency in the operations, and those new technology waves have been reasonably profound to carry forward in terms of demand.

Speaker 2

Maybe I'll just give you a little color on I mentioned the puts and takes on the 7% to 10% growth rate that we first talked about in April at our Investor Analyst Day. In terms of some of that, clearly in the macro, we see that the forecast for GDP has ticked down, say, a half a point to a point in that time frame. We have moderated our consulting growth in FS Europe, as I had mentioned, and also parts of management consulting. On the positive side, we indeed had the signing of the Nokia deal. We view as job two after delivering revenue, which is indeed to manage our costs in line with the size of our business. As you know, we have a lot of levers at our disposal that we manage in order to deliver operating margin.

We will indeed use those as necessary, both to deliver growth, as we did this year, where our business grew faster than we expected it to. If it goes the other way, same thing. Pierre?

Speaker 0

Yes. My three favorite words, if you will, are growth, rigor, and discipline, in that order. I think when it comes to rigor and discipline, this is where the answer is coming. I think for a long period of time, we have a track record of balancing supply and demand in the right way. We are extraordinarily specific in the way we forecast our business. We are looking at what's happening in every part of the world and our different organizations. This is what we will continue to do to make sure that we are matching supply and demand in a very disciplined and rigorous way.

Speaker 1

Thank you, guys.

Speaker 3

Next, we have Jason Kupferberg with Jefferies.

Speaker 0

Hey, how are you guys?

Speaker 2

Hi, Jason. Good.

Speaker 1

Good.

Speaker 2

Thank you.

Speaker 1

Good. I just wanted to pick up on the comment you just made, Pam, in terms of the puts and takes of where we were in April versus where we are now. You mentioned a little bit of moderation in the consulting revenue growth outlook. How should that, or how does that feed into your expectations for the fiscal 2012 bookings mix between consulting and outsourcing? How do you guys see that split playing out versus how it trended in fiscal 2011?

Speaker 2

I think we don't expect the mix of bookings to change significantly, but it may tilt back towards outsourcing slightly. That's how we see it today.

Speaker 1

OK, that makes sense. When you think about the underlying drivers that enabled you guys to beat your original fiscal 2011 guidance by the amount that you did, to what extent do you see some of those factors still being prevalent in the market as we think about the potential for upside to your fiscal 2012 outlook? I mean, I guess currency comes to mind as one. Clearly, there doesn't appear there'll be as much of a lift fiscal 2012 as there was in fiscal 2011. When you consider the non-FX type factors, how should we think about those?

Speaker 0

Yes. If you look at this and reflect on fiscal year 2011, as Pam mentioned, we have seen more deals on average of bigger size, especially when it comes to the outsourcing. I think this trend is reflecting indeed the need. Specific situation in Europe with the sovereign debt in some very specific countries. It is very public now that our governments, especially in Europe, are working hard to fix that problem. That's the point number one. The point number two is our clients are significantly stronger as we speak now. They've rebuilt very strong cash positions. They're all posting good results as we speak, if not record results, some much bigger and are operating on a much broader scale. They are more resilient as well. Three, they're getting in the current environment in a way which is they're more fit, if you will.

They are now more looking forward than on a pure short-term basis to understand what it takes to compete in the new environment in a way which is, again, probably more structural than tactical. I think all of this is reasonably different compared to the same period in 2008 or 2009.

Speaker 1

OK. Just my follow-up question, I guess, building on that. When we look at Europe, should we look at that on a country-by-country basis? I know you talked about potentially seeing some slight cutback there. Is that on a discretionary side in financial services? I'm just wondering how to think about Europe. Thanks.

Speaker 0

Yes, probably Europe, you're right, should be looked at in different countries. Because when you look at this market, it is very different. As you know, Germany is doing very well. France is OK. The Nordic countries are still in good shape. The UK is trying to recover. You have some very specific situation in the South. It is very different. That being said, as we speak, and if you look at the IMF or all the economies, they're still planning for Europe positive growth, slower but positive growth. That's the way we are looking at Europe, client by client, country by country, and industry by industry.

Speaker 1

Thank you.

Speaker 3

Next, we have Arvind Ramnani from UBS.

Speaker 2

Hi, Arvind.

Speaker 3

Is your line on mute?

Speaker 1

Hi. This is Arvind. You all have initially talked about 7% to 10% growth for fiscal 2012 in April of this year. Since then, you've had two stronger-than-anticipated quarters, thereby pushing out your fiscal 2012 revenue goalpost even further. Given the way we.

Speaker 0

Element, we continue to believe that the 7% to 10% is the right forecast for Accenture as we are entering fiscal year 2012.

Speaker 1

Great. Also, in the past, you have talked about your subcontractor costs for specialized skill sets kind of impacting margins. Now, given sort of the macro, are you looking to convert more of these subcontractors to sort of permanent employees?

Speaker 2

On the subcontractor usage, we started out the year with using more of them maybe than we had planned for because of how the demand was coming in stronger. We've now backed off on that a little bit so that our subcontractor usage is not as, you know, a little bit lesser part of our mix as we finished the year.

Speaker 1

OK, great, great. That's really helpful. One last one, if I can slip it in. How are you kind of managing your recruiting and your utilization rates, given that attrition rates will probably kind of reduce over the next few months?

Speaker 2

As we always do, Arvind, right? I mean, this is just what we expect to happen. I think the level of attrition that we saw, we view as a very healthy level in terms of, and you know, this is just, as Pierre Nanterme mentioned earlier, managing supply and demand is an extremely important part of what we do.

Speaker 1

Great, great. Congrats on a great quarter and good luck for fiscal 2012.

Speaker 3

All right. Thanks, Arvind. Kathy, we have time for one more question, and then Pierre, we'll wrap up the call.

Speaker 2

That will come from David Grossman with Spiegel Nicholas.

Speaker 1

Great. Thank you very much. You know, Pam, last quarter, you talked about conversion rates improving. I think you saw a similar dynamic. I think you repeated this quarter. That stands in contrast to maybe things sitting in the pipeline a little bit longer. Could you just help us understand perhaps what drives that dynamic?

Speaker 2

Things are sitting in the pipeline a little bit longer. However, in terms of things coming out of the pipeline, we were converting more. That relates to win rates, and we're also converting it faster to revenue because sometimes things are booked, but they don't become revenue for a while.

Speaker 1

That's what I'm specifically referring to.

Speaker 2

That is, I mean, we just see more contracts and work with clients that need to get going faster in a bigger way. In our mix, you know, we saw that this quarter.

Speaker 1

Is that typically a positive leading indicator when things do get?

Speaker 2

Various things that people do in addition to serving contracts that is in gross margin that goes into both of those lines. Sometimes you just sort of see some back and forth between those during the year.

Speaker 1

Is there any sense you can give in terms of how we should think of gross margin next year in 2012?

Speaker 2

No, because we guide and manage the business to operating margin. I would stick with that.

Speaker 1

OK, very good. Thank you.

Speaker 0

Thank you again for joining us on today's call. As you heard, we're very pleased with our excellent performance in fiscal year 2011 and entering fiscal year 2012 from a position of strength. Our strategy and our offerings are closely aligned with our clients' long-term competitive needs. The 236,000 Accenture men and women around the world are fully mobilized and focused on running our business efficiently and on delivering solid business outcomes to our clients. In closing, we remain confident in our ability to drive profitable growth through the focused execution of our strategy. We look forward to talking with you again on our Q1 fiscal year 2012 earnings call in December. In the meantime, if you have any questions, please feel free to call KC to make arrangements for follow-up. All the best.

Speaker 3

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