Accenture plc — Q1 FY2012 Form 10-Q
Reporting period: Three months ended November 30, 2011; unaudited results prepared under U.S. GAAP. Comparisons are with the three months ended November 30, 2010 unless otherwise noted. Accenture provides consulting and outsourcing services across five operating groups.
Financial performance
| Metric | Q1 FY2012 | Prior-year quarter | Change / context |
|---|---|---|---|
| Net revenues, before reimbursements | $7.074 billion | $6.046 billion | Up 17% in U.S. dollars and 14% in local currency |
| Total revenues, including reimbursements | $7.589 billion | $6.478 billion | Up 17%; reimbursements are matched by reimbursable expenses |
| Operating income | $981 million | $827 million | Up 19% |
| Operating margin on net revenues | 13.9% | 13.7% | Improved 0.2 percentage points |
| Gross margin | 31.8% | 32.2% | Down 0.4 percentage points |
| Net income attributable to Accenture plc | $642 million | $535 million | Up approximately 20% |
| Diluted earnings per share | $0.96 | $0.81 | Up $0.15 |
| Net cash from operating activities | $475 million | $106 million | Higher net income and operating balance changes, including client prepayments |
| Cash and cash equivalents | $5.092 billion at Nov. 30 | $5.701 billion at Aug. 31, 2011 | Quarterly decrease of $609 million |
| Total debt | $6 million | — | No borrowings under $1.629 billion of reported facilities |
Cash used in investing was $240 million, including $160 million for acquisitions and $81 million for property and equipment. Cash used in financing was $588 million, including $475 million of dividends and $285 million of share purchases. Foreign-exchange movements reduced cash by $257 million. The quarterly dividend was $0.675 per share.
Material changes and operating trends
- All five operating groups grew net revenues in local currency. Products led with 17% growth, followed by Communications, Media & Technology at 16%, Resources at 15%, and Financial Services and Health & Public Service at 11% each.
- Consulting revenue grew 14% in U.S. dollars and 11% in local currency; outsourcing grew 21% and 18%, respectively. Outsourcing increased to 42% of net revenues from 41%.
- Asia Pacific grew fastest by region, at 20% in local currency; Americas grew 16% and EMEA 10%.
- Gross margin fell mainly because of higher payroll costs, partly offset by lower non-payroll costs and favorable currency effects. Sales and marketing and general and administrative costs declined as percentages of net revenues.
- Financial Services operating income declined to $215 million from $245 million, with lower contract profitability, higher relative sales and marketing costs, and acquisition-related costs cited. Other operating groups reported higher operating income.
- Operating cash flow improved substantially year over year, while investment cash use increased, primarily due to acquisitions. Cash also reflected dividends, share repurchases, and unfavorable currency translation.
Outlook, risks and unusual items
- Management expected growth to continue in many areas based on bookings, but anticipated year-over-year growth to moderate in the second half of FY2012, particularly in consulting, and to vary by operating group and region.
- Assuming exchange rates remained within recent ranges, management estimated foreign exchange would make full-year U.S.-dollar revenue growth approximately 1 percentage point lower than local-currency growth.
- Management expected a FY2012 annual effective tax rate of 27%–28%, versus 27.3% in FY2011. The quarter’s effective tax rate was 28.3%.
- Management said cash and expected operating cash flows should cover working capital and investment needs for the next 12 months. The company had no borrowings under its facilities and was in compliance with the syndicated facility’s covenants.
- Bookings were $7.79 billion ($4.24 billion consulting and $3.55 billion outsourcing). The filing cautions that bookings are estimates, may vary significantly, are not comparable to revenue, and should not be treated as backlog; most contracts may be terminated on short notice.
- Key risks include economic and client-demand uncertainty, competition and pricing, recruiting and retaining skilled staff, foreign-exchange movements, contract delivery and profitability, cybersecurity and data protection, government-client exposure, and acquisition execution. Management reported no material change to previously disclosed risk factors.
- Reorganization liabilities related to the 2001 corporate transition totaled $284 million. The company reported ongoing tax disputes and said ultimate payments could exceed recorded amounts.
- Potential client guarantees with expressly limited terms were approximately $891 million, mostly recoverable from third parties in specified circumstances. Management believed potential payments under guarantees and indemnifications would be immaterial; it could not estimate maximum exposure for arrangements with unspecified limits.
- Non-designated foreign-currency derivatives recorded a net loss of $139 million for the quarter, which the company said was offset by gains on underlying exposures. The filing also reported a significant negative currency-translation effect on cash and other comprehensive income.
Important facts for investors to verify
- Whether revenue growth and bookings convert into sustained demand, particularly as management expected growth moderation in the second half.
- Whether payroll-cost pressure and the shift toward outsourcing affect gross margin, and whether staffing, utilization and pricing remain aligned with demand.
- Cash conversion and working-capital movements, including receivables, unbilled services and client prepayments; operating cash flow is not equivalent to earnings.
- How foreign-exchange changes affect reported revenue, cash, derivative values and margins, and whether hedges continue to offset underlying exposures.
- Acquisition integration and returns, the potential range and timing of reorganization-tax payments, and developments in legal or guarantee exposures.
- Capital allocation: dividend and repurchase levels, alongside the company’s acquisition and investment needs.