Accenture plc — FY2010 Form 10-K
Reporting period: Fiscal year ended August 31, 2010. The filing is an annual report, not a standalone Q4 filing; quarterly figures below identify the fourth quarter where relevant. Accenture provides management consulting, technology services and outsourcing globally, with approximately 204,000 employees and operations in 53 countries.
Financial performance and liquidity
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net revenues (before reimbursements) | $21.551 billion | $21.577 billion |
| Total revenues | $23.094 billion | $23.171 billion |
| Operating income | $2.915 billion | $2.644 billion |
| Operating margin on net revenues | 13.5% | 12.3% |
| Gross margin | 33.6% | 31.7% |
| Net income | $2.060 billion | $1.938 billion |
| Net income attributable to Accenture plc | $1.781 billion | $1.590 billion |
| Diluted EPS | $2.66 | $2.44 |
| Cash and cash equivalents at year-end | $4.838 billion | $4.542 billion |
| Operating cash flow | $3.092 billion | $3.160 billion |
- Net revenues were essentially flat in U.S. dollars and down 2% in local currency. The stronger dollar translation improved reported revenue results by approximately 2% relative to local-currency results.
- Consulting revenue was $12.371 billion, down 1% in U.S. dollars and 4% in local currency; outsourcing revenue was $9.179 billion, up 2% in U.S. dollars and flat in local currency. Outsourcing represented 43% of net revenues.
- Cash used in investing activities was $274 million; cash used in financing activities was $2.429 billion. Cash increased by $297 million for the year. The filing does not present a defined free-cash-flow measure.
- Total debt was approximately $1.6 million; no borrowings were outstanding under $1.716 billion of credit facilities. Letters of credit outstanding were $152 million. Management said available cash and expected operating cash flow should meet working-capital and investment needs for the next 12 months.
- Current assets were $9.564 billion and current liabilities $6.568 billion. Contractual cash obligations totaled $2.133 billion, including $1.846 billion in operating lease commitments.
Material changes and Q4 performance
- Operating income rose 10% year over year. FY2009 included $253 million of restructuring costs; excluding those costs, FY2010 operating margin increased only 10 basis points, to 13.5% from 13.4%.
- Management attributed the reported gross-margin improvement partly to its sales-effectiveness model, which shifted more employee time and payroll costs into sales and marketing. Sales and marketing expense rose 23% to $2.658 billion; general and administrative costs fell 7% to $1.668 billion. Prior-year expenses were not reclassified, limiting direct comparability.
- Fourth-quarter net revenues were $5.421 billion, up 5% in U.S. dollars and 8% in local currency. Operating income was $714 million, versus $420 million in Q4 FY2009; operating margin was 13.2%, versus 8.2%.
- Four of five operating groups reported Q4 local-currency revenue growth. For the full year, local-currency revenue declined in Communications & High Tech (7%), Health & Public Service (4%) and Resources (2%); Financial Services and Products each grew 1%.
- Fiscal 2010 bookings were $24.98 billion: $13.62 billion in consulting and $11.36 billion in outsourcing. Bookings are management estimates, can fluctuate significantly, and should not be treated as backlog because many contracts are terminable on short notice.
Outlook, risks and unusual items
- Management expected growth to continue in most areas based on FY2010 bookings, while cautioning that growth would vary by segment, geography and service type. Economic uncertainty, competitive pricing and clients’ phased contracting approach remained constraints. Public-sector uncertainty was expected to continue affecting Health & Public Service demand and bookings.
- Headcount increased to approximately 204,000 from 177,000 a year earlier. Q4 annualized attrition was 17%, versus 10% a year earlier. Management reported higher FY2011 compensation increases and said pricing and resource mix would be used to limit margin pressure.
- The company repurchased shares and redeemed equity interests for a total of $2.071 billion in FY2010 and paid $824 million in dividends. It planned to use a significant portion of operating cash for share repurchases in FY2011, subject to market conditions, capital needs and board discretion. The annual dividend per Class A share was $1.125; a $0.45 semiannual dividend was declared after year-end.
- Key exposures include economic weakness and client cancellations, price competition, contract delivery and performance risks, employee hiring and retention, foreign-exchange movements, and operational concentration in India and the Philippines. A 10% currency-rate movement would have changed the fair value of hedge instruments by approximately $218 million; that sensitivity does not include offsets from underlying exposures.
- The company disclosed a DOJ-intervened False Claims Act qui tam case concerning alleged nondisclosure of vendor alliance benefits in U.S. government work. The complaint seeks remedies including treble damages and penalties; the amount could be significant, although management said it did not expect a material impact. Government contract audits and investigations are also ongoing.
- A $272 million liability remains from the company’s 2001 corporate reorganization and related tax matters; resolution timing and final payments are uncertain, and payments could exceed recorded amounts. Unrecognized tax benefits were $1.254 billion at year-end, with audits in the U.S. and other jurisdictions.
- Management and KPMG reported effective internal control over financial reporting; KPMG issued an unqualified opinion on the financial statements and internal controls. CEO William Green was scheduled to retire January 1, 2011, with Pierre Nanterme designated as successor.
Important facts for investors to verify
- Whether local-currency growth and bookings convert into sustained revenue growth, particularly in consulting and public-sector work.
- How much of the margin improvement reflects operating performance versus the sales-effectiveness cost-classification change, and whether FY2011 compensation increases are offset by pricing or delivery mix.
- Cash conversion and working-capital trends, including rising client receivables and unbilled services, against planned buybacks and dividends.
- Developments and potential financial exposure from the DOJ government-contract case, government audits, tax proceedings and the remaining reorganization liability.
- Foreign-exchange sensitivity, pension obligations, and the company’s ability to manage delivery-network, staffing and contract-performance risks.