Business context and reporting period
Accenture plc’s unaudited Form 10-Q covers the fiscal quarter and six months ended February 28, 2013, compared with the periods ended February 29, 2012. The company provides consulting and outsourcing services through five operating groups. Amounts below are in U.S. dollars; financial figures are generally shown in millions.
Financial performance and liquidity
| Metric | Q2 FY2013 | Q2 FY2012 | Six months FY2013 | Six months FY2012 |
|---|---|---|---|---|
| Net revenues | $7,058 | $6,797 | $14,278 | $13,872 |
| Operating income | $1,165 | $889 | $2,213 | $1,870 |
| Net income attributable to Accenture plc | $1,102 | $644 | $1,801 | $1,286 |
| Diluted EPS | $1.65 | $0.97 | $2.71 | $1.93 |
| Gross margin | 31.6% | 31.1% | 32.2% | 31.5% |
| Operating margin | 16.5% | 13.1% | 15.5% | 13.5% |
- Q2 net revenue increased 4% in U.S. dollars and local currency; first-half net revenue rose 3% in U.S. dollars and 5% in local currency. Total revenue, including reimbursements, was $7,493 million for Q2 and $15,161 million for the first half.
- Outsourcing grew 9% in U.S. dollars (10% local currency) in Q2 and 9% (11% local currency) in the first half. Consulting declined 1% in Q2 and 2% in U.S. dollars for the first half, flat in local currency.
- Reported operating margins include a $224 million reorganization benefit. Excluding it, operating margin was 13.3% for Q2 and 13.9% for the first half, versus 13.1% and 13.5% in the prior-year periods.
- Q2 effective tax rate was negative 0.5%; first-half rate was 12.3%. Excluding a $243 million benefit from U.S. federal tax audit settlements and the reorganization benefit, the respective rates would have been 24.8% and 25.8%.
- Cash and cash equivalents were $5,636 million at February 28, 2013, down from $6,641 million at August 31, 2012. Current assets were $12,017 million and current liabilities $7,365 million.
- First-half operating cash flow was $525 million, versus $1,333 million a year earlier; investing cash use was $472 million and financing cash use was $1,043 million. Cash declined by $1,004 million. Management attributed the operating cash-flow decline notably to a discretionary $500 million U.S. pension contribution (net after-tax impact $350 million) and higher net client balances.
- Debt was minimal: current debt and borrowings were $13,000 and long-term debt $16,000. Available borrowing facilities totaled $1,647 million, with no borrowings and $179 million of letters of credit outstanding.
Changes, outlook, and management commentary
- Growth varied by business: Q2 local-currency revenue rose 13% in Health & Public Service, 10% in Financial Services and 6% in Products; it fell 4% in Communications, Media & Technology and 3% in Resources. Americas grew 9%, EMEA declined 1%, and Asia Pacific grew 2% in local currency.
- Management expects modest year-over-year revenue increases in each of the second-half quarters of FY2013, with results varying by operating group and geography. It expects consulting to return to positive growth in the second half, based on bookings and contracted future revenue; outsourcing growth is expected to moderate from FY2012 levels.
- Assuming exchange rates remain within recent ranges, management estimated currency translation would make full-year FY2013 U.S.-dollar revenue growth about 1 percentage point lower than local-currency growth.
- Management expects a FY2013 annual effective tax rate of 19%–20%, compared with 27.6% in FY2012. It stated available cash and expected operating cash flows should meet working-capital and investment needs for the next 12 months.
- Bookings were $9.12 billion in Q2 ($4.40 billion consulting and $4.72 billion outsourcing) and $16.59 billion for the first half. The company cautions that bookings can vary substantially, rely on estimates, and are not comparable to revenue or a measure of backlog; many contracts are terminable on short notice.
- The company spent $298 million on acquisitions in the first half, including a provider of clinical and regulatory information management solutions; acquisition pro forma effects were not material. It plans to continue using a significant portion of operating cash for share repurchases. A semiannual $0.81-per-share dividend was declared after quarter-end, payable May 15, 2013.
Risks, contingencies, and unusual items
- The $224 million reorganization benefit followed final determinations that certain liabilities tied to the company’s 2001 corporate restructuring were no longer probable. A $64 million liability remained, including $52 million classified as current; unresolved tax matters and possible litigation could affect future results.
- The tax-audit settlement and reorganization benefit materially boosted reported Q2 earnings: management said they contributed $0.34 and $0.31, respectively, to diluted EPS. Excluding both, Q2 EPS increased only $0.03 year over year.
- Management cited uncertain global economic conditions, client demand and spending patterns, competition and pricing, staffing and retention, contract delivery and profitability, foreign-exchange movements, data security, technology change, acquisitions, tax matters, and collection of receivables as risks.
- Guarantees and indemnities arise in the ordinary course of business. Potential liability under expressly limited guarantees involving third-party performance was approximately $739 million, though all but about $18 million could be recovered from third parties in specified circumstances. The company reported no significant payments under these arrangements to date and considered potential payments immaterial.
- Accenture and its personnel face ordinary-course litigation, arbitration and investigations. Management did not expect reasonably possible losses beyond accrued amounts, net of insurance recoveries, to materially affect results or financial condition. No material change to previously disclosed risk factors or market-risk exposures was reported.
Most important facts for investors to verify
- Underlying operating performance excluding the $224 million reorganization benefit, and the extent to which margin improvement persists.
- How much of reported earnings and EPS growth depends on the one-time $243 million tax settlement benefit.
- Whether consulting demand returns to growth as forecast, and whether outsourcing growth moderates as management expects.
- Cash conversion and working-capital trends after the pension contribution, including collection of receivables and unbilled services.
- Delivery of the FY2013 revenue and tax-rate outlook, alongside foreign-exchange effects and continuing share repurchases and dividends.