Accenture plc — FY2015 Form 10-K
Reporting period: Fiscal year ended August 31, 2015; fiscal fourth quarter ended the same date. Amounts are U.S. dollars. Accenture provides strategy, consulting, technology and outsourcing services, with more than 358,000 employees.
Financial performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Net revenues, before reimbursements | $31.05 billion | $30.00 billion | +3% reported; +11% local currency |
| Total revenues | $32.91 billion | $31.87 billion | +3% |
| Operating income | $4.44 billion | $4.30 billion | +3% |
| Operating margin | 14.3% | 14.3% | Flat; 14.5% excluding FY2015 pension charge |
| Net income attributable to Accenture plc | $3.05 billion | $2.94 billion | +4% |
| Diluted EPS | $4.76 | $4.52 | +5%; $4.82 excluding pension charge |
| Operating cash flow | $4.09 billion | $3.49 billion | +$606 million |
- Gross margin declined to 31.6% from 32.3%, primarily due to higher labor, subcontractor, recruiting and training costs. Sales and marketing and G&A totaled 17.1% of net revenues, down from 18.0%, reflecting cost efficiencies.
- Fourth-quarter net revenue rose 1% in U.S. dollars and 12% in local currency. Consulting grew 4% reported and 14% locally; outsourcing declined 1% reported but increased 9% locally. Q4 diluted EPS was $1.15, versus $1.08 a year earlier.
- FY2015 consulting net revenue was $16.20 billion and outsourcing was $14.84 billion; each grew 11% in local currency. All operating groups grew in local currency, led by Communications, Media & Technology (+16%). Resources was the exception to reported-dollar growth, declining 3% while growing 5% locally.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $4.36 billion at year-end, down from $4.92 billion. Operating cash flow was $4.09 billion; investing used $1.17 billion and financing used $3.20 billion. Foreign-exchange movements reduced cash by $280 million.
- Total debt was approximately $27 million. The company reported no borrowings under its $1.66 billion borrowing facilities; $167 million of letters of credit was outstanding. Management said cash and expected operating cash flow should meet working-capital and investment needs for at least the next 12 months.
- FY2015 share purchases totaled $2.27 billion for Class A shares and $179 million for subsidiary shares; cash dividends paid totaled $1.35 billion. The board later authorized an additional $5 billion of repurchases, bringing remaining authorization to approximately $7.58 billion. Management expected to use a significant portion of FY2016 operating cash for repurchases.
- FY2015 dividends were $2.04 per share. A $1.10-per-share semiannual dividend was declared after year-end, payable November 13, 2015.
Changes, outlook and notable items
- The U.S. dollar strengthened materially. Currency translation reduced reported revenue growth by about 10 percentage points in Q4 and 7.5 points for the year versus local-currency growth. Other expense increased, partly due to foreign-exchange losses, including losses on the Venezuelan bolivar.
- A $64 million non-cash pension settlement charge reduced FY2015 operating margin by 20 basis points and diluted EPS by $0.06. The settlement followed lump-sum payments from plan assets to more than 4,800 former U.S. plan participants.
- The effective tax rate was 25.8% versus 26.1%. FY2015 included a $170 million benefit from final settlement of U.S. tax audits for fiscal 2010–2011, offset in part by a $247 million withholding-tax liability recorded on distribution of substantially all previously reinvested U.S. subsidiary earnings.
- Management cited strong demand, particularly for digital services, new technologies, cloud and operational-efficiency work; pricing was described as relatively stable. Utilization was 90% in Q4 and annualized voluntary attrition was 14%. The filing does not provide quantified FY2016 revenue or EPS guidance.
- FY2015 bookings were $34.36 billion ($16.70 billion consulting; $17.66 billion outsourcing). Bookings are estimates, can fluctuate with large contract timing, and should not be treated as backlog because many contracts are terminable by clients.
- Acquisitions included Agilex Technologies and other businesses, with $792 million of net cash used for business acquisitions and investments. Accenture agreed to sell Navitaire for approximately $830 million, subject to approvals; after year-end it acquired Cloud Sherpas for approximately $410 million.
- Key risks include currency volatility, economic and client-spending uncertainty, competition and pricing pressure, attracting and deploying skilled staff, contract delivery and margin estimates, cybersecurity and data privacy, government-contracting exposure, tax disputes, and concentration of delivery operations in India and the Philippines.
- Legal proceedings were ongoing; management said reasonably possible losses beyond accrued amounts, net of insurance, were not expected to materially affect results or financial condition. Potential client guarantees and indemnities exist, but the company reported no significant payments to date. Accenture reported effective disclosure controls and internal control over financial reporting; KPMG issued unqualified audit opinions.
Important facts for investors to verify
- Whether local-currency growth converts into sustained reported-dollar growth, and how exchange rates affect revenue, margins and cash.
- Whether hiring and delivery-cost pressures ease enough to support gross-margin recovery while maintaining demand and utilization.
- The quality and timing of bookings conversion, particularly given client termination rights and the longer conversion cycle for outsourcing contracts.
- The realization of tax credits and uncertain tax positions: the filing reports $1.18 billion of tax-credit carryforwards, a $1.23 billion valuation allowance, and $998 million of unrecognized tax benefits.
- Completion and proceeds from the Navitaire divestiture, integration and returns from acquisitions, and the scale and execution of planned share repurchases and dividends.