Accenture plc — FY2020 Form 10-K
Business and period: Global professional services company serving clients across strategy and consulting, interactive, technology and operations. This annual filing covers the fiscal year ended August 31, 2020; it is not a standalone fourth-quarter filing. Accenture reported approximately 506,000 employees and $44.3 billion in revenue. From March 2020, it managed and reported its business through North America, Europe and Growth Markets.
Financial performance
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Revenue | $44.327 billion | $43.215 billion | Up 3% in U.S. dollars; up 4% in local currency |
| Operating income / margin | $6.514 billion / 14.7% | $6.305 billion / 14.6% | Income up 3%; margin up 0.1 percentage point |
| Gross margin | 31.5% | 30.8% | Improved, mainly from lower travel costs |
| Net income attributable to Accenture plc | $5.108 billion | $4.779 billion | Up about 7% |
| Diluted EPS | $7.89 | $7.36 | Includes $0.43 per share from an investment gain; $7.46 excluding it |
| Operating cash flow | $8.215 billion | $6.627 billion | Up $1.588 billion |
| Cash and cash equivalents | $8.415 billion | $6.127 billion | At August 31 |
| Debt | $61.9 million total outstanding | $22.7 million | Also had $3.149 billion of borrowing facilities with no borrowings |
Investing activities used $1.895 billion, including $1.532 billion for businesses and investments. Financing activities used $4.049 billion, including $2.916 billion for share purchases and $2.038 billion in dividends. Year-end lease liabilities were $3.424 billion following adoption of the lease accounting standard; these are separate from reported debt.
Changes and operating trends
- COVID-19 sharply changed the year’s trajectory: first-half revenue grew 7% in U.S. dollars, while second-half revenue declined 1% year over year. Management said clients delayed or reprioritized work, particularly in travel, retail, energy, high tech and industrial industries, and especially consulting.
- Consulting revenue was nearly flat in U.S. dollars and up 2% in local currency; outsourcing revenue rose 6% in U.S. dollars and 7% in local currency.
- By geographic market, local-currency revenue increased 5% in North America and 8% in Growth Markets, and was flat in Europe. Operating margin was 15% in North America, 12% in Europe and 17% in Growth Markets; Europe operating income fell $214 million while Growth Markets operating income rose $360 million.
- Public Service, Software & Platforms and Life Sciences saw increased demand, including for digital transformation, cloud and security services. Reimbursable travel-cost declines reduced full-year revenue by approximately 1%.
- New bookings were $49.6 billion, versus $45.5 billion in FY2019. Bookings are management estimates and are not equivalent to revenue or fully reflected in remaining performance obligations.
Outlook, risks and unusual items
- The filing provides no specific FY2021 revenue-growth or earnings guidance. Assuming exchange rates remain within recent ranges, Accenture estimated FY2021 U.S.-dollar revenue growth would be approximately 2% higher than local-currency growth.
- Management said it expected operating cash flows and available borrowing facilities to meet working-capital and general funding needs for the next twelve months and thereafter. It intended to continue using a significant portion of operating cash for FY2021 share repurchases. The board authorized an additional $5 billion of repurchase capacity in September 2020.
- The $332 million Duck Creek Technologies investment gain increased FY2020 diluted EPS by $0.43 after tax. The reported effective tax rate was 23.5%; excluding the gain and related tax expense, it would have been 23.9%. The prior-year rate was 22.5%.
- Key risks include the duration and economic effects of COVID-19, client spending and contract cancellations, pricing and delivery margins, talent availability and utilization, cybersecurity and data privacy, foreign-exchange movements, tax disputes and acquisition integration. Accenture accelerated its usual performance-related involuntary terminations during FY2020.
- Accenture disclosed $1.239 billion of unrecognized tax benefits, mainly involving transfer pricing and other tax positions. It said tax audits could result in significant cash payments, but did not expect their outcome to materially harm consolidated financial position or results.
- Accenture and personnel were named in a consumer class action related to the Starwood/Marriott data incident. The company said it would defend the case and could not reasonably estimate any loss. Management said reasonably possible losses from legal matters, beyond amounts accrued and net of insurance, were not expected to materially affect results or financial condition.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included estimated costs to complete certain technology-integration consulting contracts and unrecognized tax benefits.
Important facts for investors to verify
- How COVID-related client delays and demand shifts affect FY2021 growth, consulting recovery and contract profitability.
- Whether the reported EPS improvement is sustainable apart from the Duck Creek investment gain, and how the effective tax rate evolves.
- The conversion and cancellation risk in bookings: approximately $20 billion of remaining performance obligations was reported, with about 67% expected to be recognized as revenue in FY2021; many client contracts can be terminated on short notice.
- Cash returned through repurchases and dividends relative to acquisition spending, lease commitments and future operating cash generation.
- Developments in the Marriott-related litigation and tax audits, including the potential effects of the unrecognized tax benefits.