Accenture plc — FY2016 Form 10-K Summary
Business context and reporting period
Accenture is a global professional-services company providing strategy, consulting, digital, technology and operations services. This 10-K covers the fiscal year ended August 31, 2016; fourth-quarter figures refer to the three months ended that date. Unless stated otherwise, financial amounts below are U.S. dollars.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Net revenues, before reimbursements | $32.883 billion; +6% reported, +10% local currency | $31.048 billion |
| Total revenues | $34.798 billion | $32.914 billion |
| Operating income / margin | $4.810 billion / 14.6% | $4.436 billion / 14.3% reported; 14.5% excluding pension charge |
| Net income attributable to Accenture plc | $4.112 billion | $3.054 billion |
| Diluted EPS | $6.45 | $4.76 |
| Operating cash flow | $4.575 billion | $4.092 billion |
| Cash and cash equivalents at year-end | $4.906 billion | $4.361 billion |
| Total debt at year-end | About $27 million | About $27 million |
Gross margin declined to 31.3% from 31.6%, chiefly due to higher labor and acquisition-related costs. Capital expenditures were $497 million; operating cash flow less capital expenditures was approximately $4.079 billion. Accenture had $1.681 billion of borrowing facilities, with no facility borrowings, and stated cash and expected operating cash flows would meet its needs for the next 12 months.
Material changes versus the prior comparable period
- Net revenue growth accelerated in local currency to 10% from 3% in FY2015, while U.S.-dollar growth was 6%; currency translation reduced reported growth by about 5 percentage points.
- Consulting net revenue rose 15% in local currency; outsourcing rose 6%. Products grew 15% locally and Health & Public Service 12%; Resources grew 3% locally but declined 3% in U.S. dollars.
- Reported diluted EPS increased to $6.45, but included $1.11 per share from divestiture gains. Excluding those gains, FY2016 diluted EPS was $5.34 versus $4.82 excluding the FY2015 pension settlement charge.
- Operating cash flow increased $483 million. Investing cash use fell to $610 million, principally reflecting $815 million of divestiture proceeds. Financing cash use rose to $3.397 billion, including $2.533 billion of Accenture plc share purchases and $1.438 billion of dividends paid.
Outlook, commentary, risks and unusual items
- Management reported strong demand across the business. FY2016 fourth-quarter net revenue grew 8% in U.S. dollars and 9% in local currency. Fourth-quarter operating margin was 14.1%, versus 13.9% a year earlier.
- For FY2017, management estimated U.S.-dollar revenue growth would be approximately equal to local-currency growth if exchange rates remained within recent ranges. It also intended to use a significant portion of operating cash flow for share repurchases; the amount was subject to market and business conditions and Board discretion.
- Management expected near-term lower or negative growth in Chemicals & Natural Resources and Energy, reflecting difficult industry conditions. It cited continued demand for digital, cloud and security services, while noting that systems-integration work volume could grow faster than revenue as more work uses lower-cost delivery resources.
- FY2016 recorded $849 million in pretax gains: $548 million from the Navitaire sale and $301 million from the Duck Creek partial divestiture. The Duck Creek transaction left Accenture with a 40% noncontrolling interest; Navitaire sale-related service arrangements include infrastructure outsourcing over five years.
- Other significant matters include the planned U.S. pension-plan termination and settlement, expected in 12–18 months subject to approvals. Accenture expected to recognize additional expense reflecting approximately $467 million of accumulated actuarial losses, adjusted for the final settlement; it did not expect a material cash impact.
- Key risks include economic and client-spending volatility, currency movements, competition and pricing pressure, talent costs and attrition, cybersecurity and data privacy, contract delivery and performance exposure, government-contracting requirements, and complex tax audits and regulation. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much of reported earnings and EPS growth came from the $849 million divestiture gain; compare results excluding this item with the prior-year pension-charge-adjusted figures.
- Whether revenue growth, especially consulting and digital-related demand, is sustained, and how currency movements affect reported growth.
- Whether labor, acquisition and delivery costs continue to pressure gross margin and whether the weaker Resources end markets recover.
- The timing and accounting impact of the U.S. pension-plan settlement, including the treatment of accumulated actuarial losses.
- Cash deployment among repurchases, dividends and acquisitions, alongside the continuing low debt level and stated liquidity position.
- Developments in tax audits and transfer-pricing matters, cybersecurity exposure, and contingent client guarantees. Management said reasonably possible legal losses beyond accruals were not expected to materially affect results or financial condition.