Accenture plc — FY2011 Form 10-K
Business context and reporting period. Accenture provides management consulting, technology services and outsourcing globally. This 10-K covers the fiscal year ended August 31, 2011; FY2011 Q4 ended on that date. Amounts are in U.S. dollars. “Net revenues” means revenues before reimbursements.
Key financial metrics
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net revenues | $25.51 billion; +18% reported, +15% local currency | $21.55 billion |
| Total revenues | $27.35 billion | $23.09 billion |
| Operating income | $3.47 billion | $2.91 billion |
| Operating margin on net revenues | 13.6% | 13.5% |
| Gross margin on net revenues | 32.9% | 33.6% |
| Net income | $2.55 billion | $2.06 billion |
| Net income attributable to Accenture plc | $2.28 billion | $1.78 billion |
| Diluted earnings per share | $3.40 | $2.66 |
| Effective tax rate | 27.3% | 29.3% |
| Cash and cash equivalents at year-end | $5.70 billion | $4.84 billion |
| Cash from operating activities | $3.44 billion | $3.09 billion |
FY2011 investing cash outflow was $703 million and financing cash outflow was $2.12 billion. The company held $4 million of total debt and reported $1.85 billion of borrowing facilities with no borrowings outstanding; $178 million of letters of credit were outstanding. Management said cash and expected operating cash flows should meet working-capital and investment needs for the next 12 months.
Fourth-quarter performance
Q4 net revenues were $6.69 billion, up 23% in U.S. dollars and 14% in local currency year over year. Consulting net revenues were $3.88 billion, up 25% reported and 16% local currency; outsourcing net revenues were $2.81 billion, up 21% and 13%, respectively. Operating income was $923 million, operating margin was 13.8%, net income was $683 million and diluted EPS was $0.91. Consultant utilization was approximately 85%.
Material changes versus the prior comparable period
- FY2011 net revenue growth rebounded from a 2% local-currency decline in FY2010. All five operating groups grew in local currency; Resources and Products were among the strongest, while Health & Public Service grew 7%.
- Consulting grew 17% in local currency and outsourcing grew 13%. Consulting increased to 59% of net revenues from 57%; outsourcing declined to 41% from 43%.
- Asia Pacific grew 23% in local currency, Americas 17% and EMEA 11%. Favorable currency translation increased reported net revenue growth by approximately 3 percentage points for the year.
- Operating income rose 19%, and diluted EPS increased from $2.66 to $3.40. Lower effective taxes, favorable currency and a lower diluted share count also contributed to EPS growth.
- Gross margin declined 0.7 percentage point as compensation and subcontractor costs, recruiting and training expenses, and lower contract profitability weighed on results. Operating margin nevertheless improved slightly, helped by lower sales and administrative costs as a percentage of net revenues.
- Operating cash flow increased $350 million. Investing outflow rose primarily because of higher acquisition and property-and-equipment spending. Cash increased by $863 million after financing outflows and favorable exchange-rate effects.
Outlook, management commentary, risks and unusual items
- Management expected growth to continue in most areas based on bookings, but forecast that year-over-year growth would moderate, particularly in consulting, and vary by operating group and region. No specific FY2012 revenue, earnings or margin guidance is provided in the supplied filing text.
- Management cited ongoing economic and geopolitical uncertainty, particularly public-sector spending challenges in the U.S., U.K. and other markets. It expected those pressures to continue affecting Public Service demand and bookings. Resources outsourcing growth had moderated, with a near-term shift in mix toward consulting expected.
- Cost and staffing pressures include annual compensation increases, hiring and training needs, and the challenge of keeping skills and delivery capacity aligned with demand. Greater use of lower-cost Global Delivery Network resources was expected to continue.
- On September 9, 2011, the company agreed to pay the U.S. government $63.675 million to settle a civil case concerning alleged improprieties involving technology-vendor alliance agreements on federal work. Accenture denied wrongdoing; relators’ attorneys’ fees and costs remained to be litigated. FY2011 included a $75 million provision for litigation matters.
- A $307 million liability remained from the company’s 2001 reorganization-related tax exposures; final payments could exceed recorded amounts. Unrecognized tax benefits were $1.646 billion, and the company said tax audits could result in significant cash payments, though it did not expect a material adverse effect from current audits.
- Key disclosed risks include economic-driven client spending cuts or contract termination, intense competition and pricing pressure, talent retention and utilization, foreign-exchange exposure, cybersecurity and data privacy, concentration of delivery operations in India and the Philippines, government-contract funding and audit risks, and legal, tax and regulatory uncertainty.
- Subsequent to year-end, the board approved $5.0 billion of additional share-repurchase authority, bringing total authority to approximately $6.0 billion, and declared a $0.675-per-share semi-annual dividend payable November 15, 2011. The company intended to continue significant repurchases in FY2012.
Important facts for investors to verify
- Whether revenue growth moderates as management expected, and whether bookings convert into sustained revenue and profitable work; bookings are estimates, can fluctuate substantially and are not equivalent to backlog.
- Whether gross-margin pressure from compensation, subcontractors, recruiting and training stabilizes, and whether lower-cost delivery and pricing offset those costs.
- Receivables and unbilled services increased year over year; monitor collection timing and working-capital conversion alongside operating cash flow.
- Resolution and cash impact of the DOJ settlement’s remaining fee-and-cost proceedings, reorganization tax matters, and ongoing tax audits.
- Capital returns against cash needs: FY2011 share purchases totaled approximately $2.17 billion, while the board subsequently authorized substantial additional repurchases.
- Currency effects and hedge exposure: the filing estimates that a 10% exchange-rate move would change the fair value of hedge instruments by approximately $358 million, before considering offsets from underlying exposures.