Accenture plc — Form 10-Q Summary
Reporting period: First quarter of fiscal 2016, the three months ended November 30, 2015. Comparisons are with the three months ended November 30, 2014, unless noted. Financial statements are unaudited.
Business context and results
Accenture provides consulting and outsourcing services. Demand was strong, with local-currency net revenue growth across all five operating groups. The U.S. dollar strengthened against many currencies, materially reducing reported growth.
| Metric | Q1 FY2016 | Q1 FY2015 | Change |
|---|---|---|---|
| Net revenues (before reimbursements) | $8.013 billion | $7.896 billion | +1% reported; +10% local currency |
| Total revenues | $8.466 billion | $8.343 billion | +1% |
| Operating income | $1.221 billion | $1.188 billion | +3% |
| Operating margin on net revenues | 15.2% | 15.0% | +0.2 percentage points |
| Net income | $868.7 million | $892.2 million | −3% |
| Net income attributable to Accenture plc | $818.9 million | $831.5 million | −2% |
| Diluted EPS | $1.28 | $1.29 | −1 cent |
| Operating cash flow | $611.3 million | $872.9 million | −$261.6 million |
Margins, operations and segment performance
- Gross margin was 32.0%, compared with 32.2%. Higher recruiting, training and acquisition-integration costs were partly offset by lower labor costs as a share of net revenue.
- Sales and marketing plus general and administrative expenses were 16.7% of net revenues, down from 17.1%, mainly due to more efficient business-development operations. General and administrative costs rose to 5.8% of net revenues from 5.6%.
- Consulting net revenues grew 15% in local currency (6% reported); outsourcing grew 5% in local currency but declined 4% reported. Consulting represented 54% of net revenues, versus 52%.
- Local-currency net revenue growth was 12% in Communications, Media & Technology; 12% in Financial Services; 8% in Health & Public Service; 12% in Products; and 6% in Resources.
- North America, Europe and Growth Markets grew 11%, 12% and 6%, respectively, in local currency. Health & Public Service and Resources operating income declined, including delivery inefficiencies on a few Health & Public Service consulting contracts and lower Resources outsourcing contract profitability.
- Utilization was 90%, versus 91% a year earlier. Headcount was approximately 373,000, up from 319,000 a year earlier; annualized voluntary attrition was 13%, unchanged year over year.
Cash, debt and liquidity
- Cash and cash equivalents were $3.073 billion at November 30, 2015, down from $4.361 billion at August 31, 2015.
- Operating activities provided $611 million; investing activities used $706 million; and financing activities used $1.164 billion. Cash declined by $1.288 billion during the quarter.
- Lower operating cash flow reflected changes in operating assets and liabilities, including higher tax payments and lower collections on client balances. Acquisition and property/equipment spending drove higher investing cash use.
- Reported current and long-term debt totaled approximately $27.7 million. The company reported $1.65 billion of borrowing facilities, with no borrowings outstanding; $162 million of letters of credit were outstanding.
- Management said cash balances and expected operating cash flows should cover working-capital and investment needs for the next 12 months.
- Cash dividends paid were $721 million. Share purchases were approximately $658 million, including $541 million of open-market purchases.
Outlook, changes and notable items
- Management estimated full-year fiscal 2016 revenue growth in U.S. dollars would be approximately 5 percentage points below local-currency growth if exchange rates stayed within recent ranges. For Q1, currency translation reduced U.S.-dollar revenue growth by approximately 8.5 percentage points versus local-currency growth.
- Management expected a fiscal 2016 annual effective tax rate of 25%–26%; the Q1 rate was 29.3%, up from 25.1%, primarily due to lower benefits from prior-year tax determinations and adjustments.
- New bookings were $7.74 billion: $4.42 billion in consulting and $3.32 billion in outsourcing.
- Accenture acquired Cloud Sherpas for approximately $406 million net of cash acquired, adding about 1,100 employees. Other individually immaterial acquisitions totaled approximately $204 million net of cash acquired. Acquisition-related goodwill increased materially.
- The announced sale of Navitaire for approximately $830 million remained subject to customary regulatory approvals.
- Management cited economic and geopolitical uncertainty, foreign-exchange volatility, competition, demand and pricing pressures, talent and utilization management, project delivery and third-party performance, cybersecurity, acquisition integration, and tax matters among principal risks. It stated there were no material changes to the risk factors in its prior annual report.
- Accenture disclosed various litigation and regulatory matters; management believed reasonably possible losses beyond amounts accrued, net of insurance, would not materially affect results or financial condition. It also reported client guarantee exposures, but said significant payments had not been required and expected potential payments to be immaterial overall.
Important facts for investors to verify
- Whether local-currency growth and demand remain strong and translate into reported U.S.-dollar growth as exchange rates change.
- Whether gross margin recovers as recruiting, training and acquisition-integration costs evolve, and whether the Health & Public Service delivery issues are resolved.
- Whether operating cash flow improves from the quarter’s lower collections and higher tax payments while acquisition, dividend and repurchase spending continues.
- Whether the 25%–26% full-year tax-rate expectation and currency assumptions remain achievable.
- Completion and proceeds of the Navitaire sale, integration of Cloud Sherpas and other acquisitions, and developments in disclosed legal and guarantee exposures.