Accenture plc — Q1 FY2013 Form 10-Q
Reporting period: Three months ended November 30, 2012, compared with the three months ended November 30, 2011. Balance-sheet figures are compared with August 31, 2012. Amounts are U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Net revenues, before reimbursements | $7.220 billion | $7.074 billion | +2% reported; +5% local currency |
| Total revenues, including reimbursements | $7.668 billion | $7.589 billion | +1% |
| Operating income | $1.049 billion | $981 million | +7% |
| Operating margin on net revenues | 14.5% | 13.9% | +0.6 percentage points |
| Net income attributable to Accenture plc | $699 million | $642 million | +9% |
| Diluted EPS | $1.06 | $0.96 | +$0.10 |
| Operating cash flow | $(109) million | $475 million | Down $585 million |
Gross margin on net revenues improved to 32.8% from 31.8%, mainly due to better outsourcing contract profitability and lower non-contract costs. Sales and marketing plus general and administrative costs were 18.2% of net revenues, versus 17.9%. The effective tax rate was 26.8%, compared with 28.3%.
Liquidity, cash flow and debt
- Cash and cash equivalents were $5.679 billion at November 30, down from $6.641 billion at August 31. Net cash decreased $962 million during the quarter.
- Investing cash use was $296 million, including $210 million for acquisitions and $87 million for property and equipment. Financing cash use was $578 million, including $560 million in dividends and $221 million of share purchases, partly offset by share issuance and tax benefits.
- Operating cash flow was negative, primarily reflecting a discretionary $500 million contribution to the U.S. defined-benefit pension plan (a $350 million after-tax cash impact) and higher net client balances, partly offset by higher net income.
- Reported debt was minimal: $13,000 current and $19,000 long-term. Credit facilities totaled $1.650 billion with no borrowings; $175 million of letters of credit was outstanding.
- Management said available cash and expected operating cash flows should cover working-capital and investment needs for the next 12 months.
Business trends and changes
- Outsourcing net revenues rose 9% in U.S. dollars and 13% in local currency, reaching 45% of net revenues versus 42% a year earlier. Consulting net revenues declined 3% in U.S. dollars and were flat in local currency.
- By operating group, local-currency net revenue increased 13% in Health & Public Service, 9% in Financial Services, 5% in Products and 3% in Resources; Communications, Media & Technology declined 1%.
- By region, local-currency revenue grew 10% in the Americas and 8% in Asia Pacific; EMEA was flat. Reported U.S.-dollar growth was about 3 percentage points below local-currency growth due to foreign exchange.
- Operating income improved in four groups, led by Resources (+$39 million) and Health & Public Service (+$31 million); Communications, Media & Technology fell by $45 million.
- Bookings were $7.47 billion: $4.17 billion consulting and $3.30 billion outsourcing. The company cautions that bookings can vary substantially quarter to quarter and are not equivalent to backlog.
Outlook, risks and unusual items
- Management expected moderate year-over-year growth in the near term, varying across groups and regions, with lower growth or declines particularly in consulting and Europe. Consulting demand for smaller projects had weakened; larger transformation projects were taking longer to convert to revenue. Outsourcing growth was expected to moderate from fiscal 2012 levels.
- Management forecast a fiscal 2013 annual effective tax rate of 26%–27%, compared with 27.6% in fiscal 2012. It estimated foreign exchange would reduce full-year U.S.-dollar revenue growth by about 1 percentage point versus local-currency growth, assuming exchange rates stayed within recent ranges.
- Utilization was approximately 88%, within the company’s target range; headcount was approximately 259,000. Management highlighted the need to match workforce skills and costs to changing demand and recover compensation increases.
- The company intended to continue using a significant portion of operating cash for share repurchases. Remaining authorization for share purchases and redemptions was $4.050 billion.
- Reorganization liabilities were $279 million. The company noted that payments relating to unresolved tax disputes could exceed recorded amounts; one jurisdiction was identified as significant. Management also said ordinary-course litigation and investigations were not expected to have a material effect.
- Other risks cited include uncertain economic conditions, client demand, competition and pricing, foreign exchange, delivery and staffing execution, data security, acquisitions, and tax matters. Management reported no material change to previously disclosed risk factors and no material change in internal controls.
Important facts for investors to verify
- Whether consulting weakness—particularly in EMEA—and the expected moderation in outsourcing growth affect subsequent revenue and bookings.
- Whether operating cash flow recovers after the pension contribution and working-capital outflows, and how cash is allocated among dividends, buybacks and acquisitions.
- Whether margin gains from outsourcing profitability are sustained while sales and marketing and administrative costs rise as a share of net revenue.
- How the 26%–27% fiscal-year tax-rate outlook and the unresolved reorganization-related tax matters develop.
- Whether acquisitions integrate as expected and whether recorded goodwill, indemnification exposure and other contingencies require material charges or payments.