New Businesses Propel Accenture’s Revenue, Earnings

New businesses accounted for over 40% of Accenture’s total revenues in Q1 FY17

a1Global professional and consulting services company Accenture PLC (NYSE: ACN) announced its Q1 FY17 financial results on December 21st, 2016.

The Chicago, Illinois-headquartered company serves clients in a range of industries and in geographic regions, including North America, Europe, and Growth Markets. The Company provides a broad range of services and solutions in strategy, consulting, digital, technology and operations. The Company’s segments are: Communications, Media & Technology; Financial Services; Health & Public Service; Products, and Resources. Its services and solutions include Accenture Strategy, Accenture Consulting, Accenture Digital, Accenture Technology and Accenture Operations. Read more about Accenture’s a2financial results below.

Q1 FY17 financial highlights

During Q1 FY17, Accenture reported record net revenues of $8.5 billion, a 6% growth in US dollars and 7% in local currency over the year-ago same period. Adjusting for the actual foreign exchange impact of negative 1% during the reporting quarter, Accenture’s guided range for quarterly net revenues was $8.32 billion to $8.57 billion. Accenture’s Q1 FY17 net revenues were in the a3upper end of this adjusted range.

Consulting net revenues for Q1 FY17 were $4.59 billion, a 6% growth in US dollars and 7% in local currency compared to the year-ago corresponding period. Outsourcing net revenues grew 7% to $3.92 billion in both US dollars and local currency compared to Q1 FY16.

New businesses, which include digital-, cloud- and security-related services, together accounted for more than 40% of Accenture’s total revenues, clocking double-digit growth.

Gross margin for the reporting quarter was 32.1% compared to 32% for the year-ago period. Selling, general and administrative (SG&A) expenses were $1.40 billion, or 16.4% of net revenues, compared to $1.34 billion, or 16.7% of net revenues, for the year-ago period. Operating income jumped 9% to $1.33 billion, or 15.6% of net revenues, compared to $1.22 billion, a4or 15.2% of net revenues, for the year-ago period.

During Q1 FY17, Accenture’s operating income grew 9% to $1.33 billion, while operating margin was 15.6%, a Y-o-Y expansion of 40 basis points. In all, Accenture’s net income jumped 22% to $1.06 billion from $869 million in the year-ago same period. Diluted EPS jumped 23% to $1.58 versus Q1 FY16, and included a $0.18 positive impact from a lower tax rate, partially offset by a $0.01 decrease from higher non-operating expense.

Net revenue by operating group

Communications, Media & Technology: During Q1 FY17, this group’s revenue was at $1.69 billion compared to $1.60 billion in the year-ago same period, an increase of 5% in US dollars and 4% in local currency.

Financial Services: During Q1 FY17, this group’s revenue was at $1.81 billion compared to $1.75 billion in the year-ago comparable period, an increase of 4% in US dollars and 6% in local currency.

Health & Public Service: During Q1 FY17, this group’s revenue was at $1.50 billion compared to $1.42 billion in the year-ago corresponding period, an increase of 5% in both US dollars and local currency.

Products: During Q1 FY17, this group’s revenue was at $2.32 billion compared to $1.99 billion in Q1 FY16, an increase of 17% in both US dollars and local currency.

Resources: During Q1 FY17, this group’s revenue was at $1.19 billion compared to $1.25 billion in last year same quarter, a decrease of 4% in US dollars and 2% in local currency.a5

Net revenue by geographic region

North America: During Q1 FY17, this region generated revenue of $3.98 billion compared to $3.76 billion in Q1 FY16, an increase of 6% in both US dollars and local currency.

Europe: During Q1 FY17, this region generated revenue of $2.94 billion compared to $2.88 billion in the same quarter last year, an increase of 2% in US dollars and 7% in local currency.

Growth Markets: During Q1 FY17, this region generated revenue of $1.59 billion compared to $1.36 billion in the year-ago comparable period, a jump of 17% in US dollars and 10% in local currency.a6

Other highlights

Cash flow: During Q1 FY17, operating cash flow was $1.08 billion, and property and equipment additions were $85 million. Free cash flow, defined as operating cash flow net of property and equipment additions, was $1.00 billion. For the year ago period, operating cash flow was $643 million; property and equipment additions were $95 million; and free cash flow was $548 million.

DSO: Days services outstanding, or DSOs, were 44 days as of November 30th, 2016, compared to 39 days as of August 31st, 2016 and 41 days as of November 30th, 2015.

Cash balance: Accenture’s total cash balance at November 30th, 2016 was $4.1 billion compared to $4.9 billion as of August 31st, 2016.

a7New bookings: New bookings for Q1 FY17 were $8.3 billion, with consulting bookings of $4.9 billion and outsourcing bookings of $3.4 billion, and reflect a negative 1% foreign currency impact compared to new bookings in the year-ago same period. During the reporting quarter, consulting new bookings accounted for 59% of total new bookings, while outsourcing new bookings accounted for 41% of total new bookings.

Dividend: Accenture announced on November 15th, 2016, a semi-annual cash dividend of $1.21 per share to Class A ordinary shareholders of record at the close of business on October 21st, 2016 and to ordinary shareholders on record at the close of business on October 18th, 2016. These cash dividend payments totaled $785 million and represent an increase of $0.11 per share, or 10%, over the company’s previous semi-annual dividend, declared in March 2016.

a8Share repurchase: During Q1 FY17, Accenture repurchased or redeemed 5.0 million shares for a total of $588 million, including approximately 3.9 million shares repurchased in the open market. Accenture’s total remaining share repurchase authority as of November 30th, 2016 was approximately $4.9 billion.

Strategic acquisitions: During Q1 FY17, Accenture deployed $600 million for strategic acquisitions. In digital, the Company is acquiring OCTO Technology, a leading digital consulting firm based in Paris. Accenture also acquired Karmarama, a creative agency in the UK, and Allen International, a design consultancy that specializes in banking.

In cloud, Accenture acquired DayNine, a leading Workday consulting and services provider, and Nashco Consulting, which expands its capabilities in ServiceNow. In security, Accenture acquired Defense Point Security, enhancing its cyber security capabilities for US federal agencies. Accenture also completed the acquisition of Redcore in Australia and further strengthened the capabilities of Accenture Strategy with the acquisition of Kurt Salmon, which brings deep expertise in the retail industry.

In the highly competitive IT services domain, Accenture mainly competes with International Business Machines Corporation (NYSE: IBM) and Infosys Ltd. (NYSE: INFY). To effectively compete with these global rivals and build its cloud services capability in the developed markets, Accenture has been adding to its products and services portfolio through recent acquisitions.

a9Accenture announced on September 08th, 2016, that it has entered into a definitive agreement to acquire Italian firm New Energy Group, a multinational consultancy that specializes in Salesforce solutions. New Energy Group, a 10-year-old company with over 450 employees, has its operative headquarters in Rome, Milan, London, and Barcelona. The deal is seen to be a strategic fit for Accenture’s Cloud First agenda, which offers comprehensive, industry-focused cloud services including strategy, implementation, migration and managed services, and assets including the Accenture Cloud Platform that can drive broader transformational programs for clients. Accenture has so far completed over 20,000 cloud computing projects for clients, and has more than 21,000 professionals trained in cloud computing.

a10Partnership with Google: On September 29th, 2016, technology giant Alphabet Inc. (NASDAQ: GOOG) announced a partnership with Accenture to develop cloud services for clients in industries such a retail, healthcare and finance. The partnership would bring to market industry-specific solutions that will help clients use cloud, mobility, and analytics to advance their digital transformation agenda and improve business performance.

Accenture will apply its broad industry expertise and capabilities to help enterprise clients improve the value of Google technologies within their organizations. The solutions will combine products from across Google Cloud including Android, apps, analytics, augmented reality, big data, and machine learning. Accenture and Google will provide dedicated resources from each company with capability in cloud solutions architecture, mobility and app development to help bring these solutions to large enterprise clients.

Guidance for Q2 FY17 and FY17

For Q2 FY17, Accenture expects net revenues to be in the range of $8.15 billion to $8.40 billion, a 5% to 8% growth in local currency, reflecting the Company’s assumption of a 2% percent negative foreign-exchange impact compared to the year-ago comparable period.

For the full year FY17, Accenture predicts that foreign exchange headwinds would have a negative impact of 2% on its results in US dollars compared to FY16. Net revenue growth is predicted to be in the range of 5% to 8% in local currency. GAAP diluted EPS is forecasted to be in the range of $5.64 to $5.87 compared to previously announced range of $5.75 to $5.98, reflecting its updated foreign-exchange assumption. Accenture expects operating margin to be in the range of 14.7% to 14.9% and operating cash flow to be $4.6 billion to $4.9 billion; property and equipment additions to be $600 million; and free cash flow to be in the range of $4.0 billion to $4.3 billion.

Stock Performance

a11Accenture’s stock finished the day at $117.13, gaining marginally 0.10%, at the close on Friday, December 30th, 2016, having vacillated between an intraday high of $117.95 and a low of $116.59 during the session. The stock’s trading volume was at 1,739,750 for the day. The Company’s market cap was at $76.05 billion as of Friday’s close.

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