Accenture plc — FY2018 Form 10-K
Reporting period: Fiscal year ended August 31, 2018. The filing is an annual report, not a standalone fourth-quarter filing; quarterly figures below identify FY2018 Q4. Accenture provides consulting, technology, digital, operations and outsourcing services. It reported approximately 459,000 employees and operated in 52 countries.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Net revenues, before reimbursements | $39.57 billion | $34.85 billion |
| Total revenues, including reimbursements | $41.60 billion | $36.77 billion |
| Operating income | $5.84 billion | $4.63 billion |
| Net income attributable to Accenture plc | $4.06 billion | $3.45 billion |
| Diluted earnings per share | $6.34 | $5.44 |
| Operating cash flow | $6.03 billion | $4.97 billion |
| Cash and cash equivalents at year-end | $5.06 billion | $4.13 billion |
Net revenue increased 13.5% in U.S. dollars and 10.5% in local currency. Gross margin was 31.4%, down from 31.7%, mainly reflecting higher labor costs, partly offset by cost efficiencies. Operating margin was 14.8%, compared with 13.3% reported in FY2017; excluding FY2017’s $510 million pension settlement charge, it was 14.8% in both years. FY2018’s 27.4% effective tax rate included $258 million of tax-law-change expense; excluding that charge, the rate was 23.0%.
At August 31, 2018, total assets were $24.45 billion and total shareholders’ equity was $10.72 billion. Total debt was approximately $25 million; the company reported no borrowings under its credit facilities. Operating, investing and financing cash flows were $6.03 billion, negative $1.25 billion and negative $3.71 billion, respectively. Dividends paid totaled $1.71 billion and share purchases totaled $2.64 billion. Operating lease commitments were $3.65 billion.
FY2018 Q4: Net revenues were $10.15 billion, operating income $1.45 billion, net income attributable to Accenture plc $1.03 billion and diluted EPS $1.58. In FY2017 Q4, the corresponding amounts were $9.15 billion, $1.30 billion, $932 million and $1.48.
Changes and business drivers
- Growth was broad-based: local-currency net revenue rose 14% in Communications, Media & Technology; 13% in Resources; 11% in Products; and 7% in each of Financial Services and Health & Public Service.
- Consulting revenue grew 12% in local currency and outsourcing 9%. Management cited strong demand for digital-, cloud- and security-related work, technology adoption, cost savings and operational transformation.
- Growth Markets rose 16% in local currency; North America and Europe each rose 9%. The U.S. represented 43% of consolidated net revenues.
- Headcount increased to approximately 459,000 from 425,000; utilization remained 91%, while attrition excluding involuntary terminations rose to 15% from 14%.
- Accenture Holdings plc merged into Accenture plc in March 2018, reducing noncontrolling ownership from 4% to less than 1%. The filing describes the transaction as internal and administrative.
Outlook, risks and unusual items
- No explicit FY2019 revenue-growth or earnings guidance is provided in the supplied filing text. If exchange rates remain within recent ranges, management estimated U.S.-dollar revenue growth could be about 2.5 percentage points below local-currency growth.
- Management expected cash from operations, available cash and borrowing capacity to meet working-capital and general funding needs. It intended to continue using a significant portion of FY2019 operating cash for share repurchases. In September 2018, the board added $5.0 billion of repurchase authorization.
- The U.S. Tax Cuts and Jobs Act and other tax-law changes produced a $258 million FY2018 charge. Beginning FY2019, adoption of an intra-entity tax-transfer standard was expected to create deferred tax assets of up to $2.1 billion and could raise the annual effective tax rate by approximately 3.3 percentage points as those assets are used; management said cash flows would not be affected.
- Key disclosed risks include economic and geopolitical uncertainty, foreign-exchange movements, competition and rapid technology change, talent availability and labor costs, cybersecurity and data privacy, tax disputes, government-contracting exposure, and execution of acquisitions and complex client contracts.
- Unrecognized tax benefits were $1.21 billion; management said they could decrease by approximately $486 million or increase by approximately $219 million over the next 12 months. Management considered the reasonably possible additional losses from litigation, net of accruals and insurance, not material to consolidated results or financial condition.
- Client guarantees involving third-party performance had approximately $782 million of stated potential liability, with all but approximately $130 million potentially recoverable from third parties. The company reported no significant payments to date and assessed potential payments as immaterial overall.
- New revenue and pension accounting standards were adopted in FY2019; management expected revenue-standard effects to be largely immaterial. The lease standard, scheduled for FY2020 adoption, was expected to materially affect the balance sheet.
Most important facts for investors to verify
- Whether revenue growth and demand in digital, cloud and security services continue, and whether labor-cost pressure further affects gross margin.
- How reported FY2019 tax expense reflects the new tax rules and utilization of deferred tax assets, including any final changes in estimates.
- Actual repurchases, dividends and acquisition spending versus operating cash generation and the company’s capital-allocation priorities.
- Developments in tax audits, transfer-pricing matters, legal contingencies and government-contract reviews; the filing does not quantify a reliable maximum for guarantees with unspecified limits.
- Foreign-exchange effects and the balance between local-currency growth and U.S.-dollar results; management’s currency estimate depends on exchange rates remaining within recent ranges.