Accenture Plc annual report, FY2019

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Accenture plc — FY2019 Form 10-K

Reporting period: Fiscal year ended August 31, 2019; the filing also reports fourth-quarter results. Accenture provides consulting, technology and outsourcing services globally. It reported approximately 492,000 employees and $43.2 billion in FY2019 revenue, with most revenue in digital-, cloud- and security-related services.

Financial performance and liquidity

  • FY2019 revenue: $43.215 billion, up 5% in U.S. dollars and 8.5% in local currency from FY2018. The stronger U.S. dollar reduced reported growth by about 3 percentage points.
  • FY2019 profit: Operating income was $6.305 billion, up 7%; operating margin was 14.6%, versus 14.4%. Gross margin rose to 30.8% from 30.5%. Net income was $4.846 billion; net income attributable to Accenture plc was $4.779 billion, versus $4.060 billion. Diluted EPS was $7.36, up from $6.34.
  • Fourth quarter: Revenue was $11.056 billion, versus $10.504 billion in Q4 FY2018; operating income was $1.571 billion versus $1.470 billion; net income attributable to Accenture plc was $1.130 billion versus $1.030 billion; diluted EPS was $1.74 versus $1.58.
  • Business mix and bookings: Consulting revenue was $24.177 billion, up 8% in local currency; outsourcing was $19.038 billion, up 9%. New bookings totaled $45.5 billion: $24.7 billion consulting and $20.8 billion outsourcing.
  • Growth by operating group: Local-currency revenue growth was strongest in Resources (+18%); Communications, Media & Technology and Products each grew 9%; Health & Public Service grew 6%; Financial Services grew 3%. Financial Services operating income declined to $1.238 billion from $1.365 billion.
  • Cash flow and liquidity: Operating cash flow was $6.627 billion, up from $6.027 billion. Investing activities used $1.756 billion, including $1.193 billion for acquisitions and investments; financing activities used $3.767 billion. Cash and cash equivalents ended the year at $6.127 billion, up from $5.061 billion.
  • Debt and obligations: Total debt was approximately $22.7 million; available borrowing facilities totaled about $2.011 billion, with $2.5 million borrowed. Contractual cash obligations were $4.244 billion, including $3.840 billion of operating lease commitments. The company said it expected operating cash flows and, if needed, borrowing facilities and future financing to meet funding needs.
  • Capital returns: FY2019 cash dividends were $2.92 per share, totaling $1.864 billion. Share purchases totaled $2.669 billion. The company said it expected to use a significant portion of FY2020 operating cash generation for repurchases.

Changes, outlook and notable items

  • Compared with FY2018, revenue growth in local currency eased from 10% to 8.5%. Resources accelerated to 18% growth, while Financial Services remained the slowest-growing operating group. Operating margin improved 0.2 percentage points.
  • FY2018 included a $258 million tax-law-change charge; excluding it, the FY2018 effective tax rate was 23.0% and diluted EPS was $6.74. FY2019 effective tax rate was 22.5%. Management attributed the lower rate primarily to earnings mix and favorable final tax determinations, partly offset by tax-accounting adoption effects.
  • Management estimated FY2020 U.S.-dollar revenue growth would be approximately 1 percentage point below local-currency growth if exchange rates stayed within recent ranges. The filing does not provide a specific full-year revenue-growth or EPS target.
  • Remaining performance obligations were approximately $20 billion; management expected to recognize about 66% in FY2020 and a further 14% in FY2021. This measure excludes cancellable contract portions, and management notes it is not equivalent to bookings.
  • Adoption of revenue-recognition guidance changed presentation to total revenues and reclassified certain receivables and contract assets; management said the adoption was not material to the financial statements. Adoption of intra-entity transfer tax guidance added $2.144 billion to deferred tax assets and retained earnings; management said it would increase future tax expense as those assets are used. Accenture adopted lease accounting on September 1, 2019 and expected to recognize approximately $3 billion of operating lease assets and liabilities.
  • Acquisitions and investments increased: FY2019 acquisition consideration was $1.170 billion, versus $596 million in FY2018. Management cited strategic acquisitions, offerings, innovation and talent as investment priorities.
  • Risks and contingencies: Key disclosed risks include economic and geopolitical uncertainty, foreign-exchange exposure, competition and technology change, talent availability and costs, cybersecurity and privacy, tax disputes, contract delivery and pricing, and government-contracting requirements. A putative consumer class action related to the Starwood/Marriott data-security incident named Accenture as a defendant; Accenture said it would defend the case and could not estimate a potential loss. Management believed reasonably possible losses from legal matters beyond accrued amounts would not materially affect results or financial condition.
  • Julie Sweet became CEO and KC McClure became CFO in 2019. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.

Investor verification priorities

  1. Confirm that local-currency growth, operating margin improvement and EPS growth are sustainable, especially given slower Financial Services growth and currency headwinds.
  2. Review cash conversion and working-capital movements, including receivables and contract assets, and compare bookings with revenue and remaining performance obligations.
  3. Assess acquisition returns and integration, and whether planned share repurchases remain consistent with investment and liquidity needs.
  4. Monitor tax exposures: unrecognized tax benefits were $1.233 billion, with transfer pricing among the principal uncertainties; management said the balance could decrease by about $291 million or increase by about $397 million over the next 12 months.
  5. Track the Starwood/Marriott litigation, cybersecurity controls, and the financial and reputational effects of any adverse developments.