Accenture plc — FY2017 Form 10-K
Business context and reporting period. Accenture is a global professional-services company providing strategy, consulting, digital, technology and outsourcing services. This filing covers the fiscal year ended August 31, 2017; FY2016 is the principal comparable period. Amounts below are U.S. dollars.
Financial performance
- Revenue: Net revenue, excluding reimbursements, was $34.85 billion, up 6% in U.S. dollars and 7% in local currency. Total revenue was $36.77 billion, up 6%. Consulting net revenue rose 5% in U.S. dollars; outsourcing rose 7%.
- Operating results: Operating income was $4.63 billion versus $4.81 billion; reported operating margin was 13.3% versus 14.6%. FY2017 included a $510 million pension settlement charge. Excluding that charge, operating income was $5.14 billion and operating margin was 14.8%, compared with 14.6% in FY2016.
- Profit and EPS: Net income attributable to Accenture plc was $3.45 billion, down from $4.11 billion. Diluted EPS was $5.44 versus $6.45. Excluding the after-tax pension charge in FY2017 and after-tax business-sale gains in FY2016, diluted EPS was $5.91 versus $5.34.
- Margins and tax: Gross margin improved to 31.7% from 31.3%, principally reflecting lower labor costs as a share of net revenue. The effective tax rate was 21.3% versus 22.4%; excluding the pension and divestiture effects, the filing reports adjusted rates of 23.0% and 24.2%, respectively.
- Cash flow and liquidity: Operating cash flow was $4.97 billion, up from $4.67 billion. Investing activities used $2.23 billion, compared with $610 million, reflecting higher acquisition and investment spending. Financing activities used $3.56 billion. Cash and cash equivalents ended the year at $4.13 billion, down from $4.91 billion.
- Debt and commitments: Total debt was approximately $25 million, with $22 million long-term and $3 million current; no borrowings were outstanding under the listed credit facilities. Available borrowing facilities totaled $1.74 billion. Contractual obligations totaled $3.99 billion, including $3.71 billion of operating lease commitments.
- Bookings and workforce: New bookings were $37.4 billion: $19.8 billion consulting and $17.6 billion outsourcing. Headcount was approximately 425,000, versus 384,000 a year earlier; utilization was 91%, unchanged.
Material changes versus FY2016
- Net revenue growth slowed to 6% in U.S. dollars from 6% in FY2016 but to 7% from 10% in local currency. Growth was led by Products (14% local currency) and Growth Markets (12%); Resources grew 1%, while North America grew 4%.
- FY2017 operating income and reported EPS were reduced by the pension settlement charge. FY2016 results included $849 million of gains from the Navitaire sale and partial Duck Creek divestiture.
- Acquisition and investment cash outlays rose to $1.70 billion from $933 million. Goodwill increased to $5.00 billion from $3.61 billion, largely reflecting acquisitions.
- Cash declined by $779 million, while shareholders’ equity increased to $8.95 billion from $7.56 billion. Accenture repurchased $2.17 billion of shares in open-market purchases during FY2017.
Outlook, commentary, risks and unusual items
- Management estimated FY2018 U.S.-dollar revenue growth would be approximately 3 percentage points higher than local-currency growth if exchange rates remained within recent ranges. The filing does not provide a specific numerical FY2018 revenue-growth target in this text.
- Management cited strong demand, particularly for digital, cloud and security services, and stable pricing. Growth moderated in North America; Health & Public Service and Resources had modest local-currency growth.
- Accenture expects operating and longer-term funding needs to be met by operating cash flow and, if needed, borrowing facilities or capital-market activity. It intended to continue significant share repurchases in FY2018, subject to market conditions, cash needs and management and board discretion.
- The $510 million pension settlement charge followed termination of the U.S. pension plan in May 2017; related tax benefits were $198 million. The settlement relieved Accenture of further obligations under that plan, while a separate plan was created for approximately 600 active employees eligible to accrue benefits.
- Key disclosed risks include economic and geopolitical uncertainty, foreign-exchange volatility, intense competition, changing technology and client demand, talent recruitment and retention, cybersecurity and data privacy, contract delivery and pricing, acquisitions and integration, tax audits and regulatory changes, and concentration of delivery operations in India and the Philippines.
- Tax matters warrant attention: unrecognized tax benefits were $946 million at year-end, and management said the balance could decrease by approximately $422 million or increase by approximately $306 million over the next 12 months. Management did not expect current tax audits to materially affect consolidated results or financial position.
- Accenture disclosed litigation and regulatory investigations but said reasonably possible losses beyond amounts accrued, net of insurance, were not expected to materially affect results or financial condition. It also reported potential client liability of approximately $697 million for expressly limited third-party performance guarantees; management assessed potential payments as immaterial overall.
Most important facts for investors to verify
- Reconcile reported EPS and operating margin with the pension settlement charge and the prior-year divestiture gains when comparing underlying performance.
- Assess whether bookings convert to revenue: Accenture cautions that bookings are estimates, vary by quarter, and are not equivalent to backlog; many contracts can be terminated on short notice.
- Review acquisition returns and integration, given the increase in acquisition spending and goodwill.
- Monitor cash conversion and capital allocation, including share repurchases, dividends and lease commitments.
- Track currency effects, tax exposures and the disclosed FY2018 currency assumption; verify how the stated outlook changes if exchange rates move.