Accenture plc — Q2 FY2011 Form 10-Q
Business context and period. The unaudited quarter and six-month periods ended February 28, 2011. Accenture provides consulting and outsourcing services through five operating groups. Amounts below are U.S. dollars; “net revenue” excludes reimbursements.
Financial results and liquidity
| Metric | Three months | Six months |
|---|---|---|
| Net revenue | $6.05 billion; +17% reported, +18% local currency | $12.10 billion; +15% reported, +16% local currency |
| Total revenue, including reimbursements | $6.50 billion, versus $5.54 billion | $12.97 billion, versus $11.29 billion |
| Operating income / margin | $772 million / 12.7%, versus $651 million / 12.6% | $1.60 billion / 13.2%, versus $1.40 billion / 13.2% |
| Net income attributable to Accenture plc | $503 million, versus $400 million | $1.04 billion, versus $845 million |
| Diluted EPS | $0.75, versus $0.60 | $1.56, versus $1.27 |
| Gross margin | 31.7%, versus 32.7% | 31.9%, versus 32.9% |
- Cash and cash equivalents were $4.68 billion at February 28, compared with $4.84 billion at August 31, 2010. Six-month operating cash flow was $708 million, down from $879 million; investing cash use was $270 million, chiefly reflecting higher acquisition and capital spending. Cash declined $161 million after financing outflows of $750 million.
- Debt was approximately $5 million. The company reported $1.79 billion in borrowing facilities with no borrowings, alongside $171 million of letters of credit. Current assets of $10.28 billion exceeded current liabilities of $6.62 billion.
- Six-month dividends paid were $321 million. The board declared a further $0.45 per share dividend payable May 13, 2011. The company had $2.36 billion of remaining share-purchase and redemption authorization.
Changes, outlook, and risks
- All five operating groups grew net revenue in local currency in the quarter. Resources grew 25% and Financial Services 20%; consulting increased 20% and outsourcing 15%. Asia Pacific and the Americas grew 25% and 20%, respectively, while EMEA grew 14%.
- Management said demand had improved and expected growth to continue in most areas, but to moderate from the quarter’s strong pace, particularly in outsourcing. Growth was expected to vary by segment, geography, and service type. Second-quarter bookings were $6.98 billion; six-month bookings were $13.29 billion. Bookings are estimates and are not equivalent to backlog; most contracts can be terminated on short notice.
- Management forecast a FY2011 effective tax rate of 28%–29%, compared with 29.3% in FY2010. It estimated currency effects could make full-year U.S.-dollar revenue growth about two percentage points higher than local-currency growth if exchange rates stayed within recent ranges.
- Gross margin fell 1.0 percentage point year over year in both periods, reflecting higher compensation and subcontractor costs, recruiting and training costs, and lower contract profitability, particularly in consulting. Management said pricing and a more efficient resource mix were intended to offset cost increases. Headcount reached about 215,000, up 19% year over year; second-quarter utilization was approximately 86%.
- Management cited economic and geopolitical uncertainty, including events in Japan, and continued public-sector uncertainty affecting demand and bookings. Other disclosed risks include competition and pricing, client satisfaction and contract termination, talent availability and retention, foreign exchange, receivables collection, data security, and acquisition integration.
- Reorganization-related liabilities were $296 million; management cautioned that ultimate payments could exceed recorded amounts. A U.S. government qui tam action alleging improper conduct related to technology-vendor alliances seeks remedies that could be significant; the company said it would defend the matter and did not expect a material impact. Management also said other litigation and investigations were not expected to have a material effect. Potential client guarantees with expressly limited terms totaled about $694 million, most of which could be recovered from third parties; management assessed potential payments as immaterial.
- The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Management noted that reported interim results are not necessarily indicative of full-year results.
Investor verification points
- Check whether revenue growth, bookings, and demand support management’s expectation of continued but moderating growth.
- Track gross margin recovery against compensation, subcontractor, recruiting, and training costs, and assess whether pricing and resource mix are sufficient.
- Compare operating cash flow with earnings and monitor client receivables, unbilled services, and deferred revenue.
- Monitor the FY2011 tax-rate outlook and currency assumptions against reported results.
- Review developments in the government qui tam litigation and reorganization-related tax disputes, including any changes to potential exposure.