Accenture plc Form 10-K Summary
Business context and reporting period
Accenture provides management consulting, technology and outsourcing services globally. This 10-K reports fiscal 2013, ended August 31, 2013; fiscal Q4 is the three months ended on that date. The company reported approximately 275,000 employees and operations in 56 countries.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net revenues, before reimbursements | $28.56 billion | $27.86 billion |
| Operating income | $4.34 billion | $3.87 billion |
| Operating margin | 15.2%; 14.2% excluding reorganization benefits | 13.9% |
| Net income attributable to Accenture plc | $3.28 billion | $2.55 billion |
| Diluted earnings per share | $4.93 | $3.84 |
| Operating cash flow | $3.30 billion | $4.26 billion |
| Cash and cash equivalents at year-end | $5.63 billion | $6.64 billion |
Fiscal 2013 net revenues increased 3% in U.S. dollars and 4% in local currency. Consulting revenue declined 1% in U.S. dollars but grew 1% in local currency; outsourcing revenue grew 7% and 9%, respectively. Gross margin improved to 32.9% from 32.3%, principally on higher outsourcing contract profitability. Sales and marketing expense rose 5% to $3.48 billion, while general and administrative expense was $1.84 billion.
For Q4, net revenues were $7.09 billion, up 3.7% in U.S. dollars and 4.5% in local currency. Operating income was $984 million, versus $940 million; operating margin was 13.9%, versus 13.8%. Net income attributable to Accenture plc was $671 million and diluted EPS was $1.01.
Operating cash flow declined by $954 million year over year. The company cited a discretionary $500 million U.S. pension contribution, with a $350 million after-tax cash-flow impact, and increases in net client balances, partly offset by higher net income. Investing cash outflow was $1.16 billion, including $804 million for acquisitions; financing cash outflow was $3.07 billion, reflecting share purchases and dividends.
Year-end total debt was $25.6 million. The company had $1.68 billion of borrowing facilities with no borrowings under them, and $179 million of letters of credit outstanding. Management said cash and expected operating cash flows should meet working-capital and investment needs for the next 12 months.
Material changes versus the prior period
- Net revenue growth slowed to 3% in U.S. dollars from 9% in fiscal 2012; local-currency growth slowed to 4% from 11%.
- Outsourcing grew more slowly than in fiscal 2012, but remained the stronger growth platform; it represented 46% of fiscal 2013 net revenue, versus 44% a year earlier.
- Operating margin increased to 15.2%, including a $274 million reorganization benefit. Excluding that benefit, margin was 14.2%, up 30 basis points from fiscal 2012.
- Reported EPS included a $0.38-per-share benefit from reorganization items and a $0.34-per-share benefit from settlements of U.S. federal tax audits. Excluding both, diluted EPS was $4.21.
- Cash declined by $1.01 billion, compared with a $939 million increase in fiscal 2012, as operating cash generation fell and acquisition, repurchase and dividend outlays increased.
Outlook, commentary and risks
Management expected near-term year-over-year revenue to range from a slight decline to a modest increase, with results varying across operating groups and regions. It expected longer-duration consulting contracts and slower client spending to continue delaying conversion of bookings into revenue. Assuming exchange rates remained within recent ranges, management estimated fiscal 2014 U.S.-dollar revenue growth would be 1 percentage point below local-currency growth.
Fiscal 2013 bookings were $33.28 billion ($16.27 billion consulting and $17.01 billion outsourcing). Management cautioned that bookings are estimates, can vary substantially, are not comparable to revenue, and should not be treated as backlog because many contracts are terminable on short notice.
Key risks include uncertain client demand and macroeconomic conditions, particularly in parts of Europe and Brazil; pricing pressure and contract profitability; competition for skilled employees; foreign-exchange movements; cybersecurity and data-protection exposures; government-contracting and regulatory risks; and reliance on global delivery operations concentrated in India and the Philippines. Tax audits and other legal proceedings remain possible; management did not expect the disclosed legal matters to materially affect results or financial condition.
Unusual items included the $274 million reorganization benefit from final determinations of liabilities relating to the 2001 corporate transition and the $243 million benefit from U.S. federal tax audit settlements for fiscal 2006–2009. The company also acquired Acquity Group and other businesses during the year; total consideration for the other individually immaterial acquisitions was $521 million. Management reported effective disclosure controls and internal control over financial reporting; the independent auditor gave unqualified opinions.
Important facts for investors to verify
- How much of fiscal 2013’s earnings and margin improvement is repeatable after removing the reorganization and tax-settlement benefits.
- Whether consulting demand stabilizes and outsourcing growth sustains revenue and margin performance amid slower client spending.
- Whether operating cash flow recovers from the pension contribution and higher net client balances, and how cash is allocated among acquisitions, dividends and repurchases.
- How acquisitions, including Acquity, contribute to growth and returns relative to the increase in goodwill.
- Developments in tax audits, foreign-exchange exposure and the company’s ability to convert bookings into revenue under terminable contracts.