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Accenture Q1 FY 2014 Results: Growth to Accelerate in H2

Accenture reported its Q1 FY 2014 results yesterday (for full details see http://research.nelson-hall.com/search/?avpage-views=article&searchid=8635&id=201593&fv=2).

Although net revenues of $7.36bn were above prior guidance ($7.00-7.30bn, assuming a negative FX impact of 1%), CEO Nanterme referred to the quarter’s performance as being “in line with expectations". This is the fifth quarter in a row when Accenture has achieved constant currency growth of between 3% and 4%.

  • Outsourcing continues to be the growth engine, though at 6% CC growth, it’s a slower ticking engine than the one that delivered double digit growth from FY 2011 to H1 FY 2013
  • Consulting is back to zero growth but management indicates that Consulting will deliver flat to low single digit positive growth next quarter, and improve in H2 this year, following stronger bookings in Q1. Consulting appears to be strongest currently in the U.S.

Accenture continues to improve its operating margin, while increasing its investment in sales and marketing, which reached 12.6% of revenue this quarter, up 60 bps y/y.

A highlight of the quarter was the $8.7bn in bookings; Accenture highlighted it secured thirteen $100m+ deal signings during the quarter.

  • Consulting is particularly encouraging, after two quarters of negative y/y growth; in particular SI bookings saw strong y/y growth. Nanterme referred to the company having been “very successful moving deals at pace through the pipeline and getting work contracted”
  • Outsourcing quarterly bookings tend to be more lumpy, so less of an indicator. IT outsourcing book to bill was 1.3. Following a strong Q4, BPO bookings were “solid”. Management says the overall outsourcing demand environment remains “robust”.

The Products and H&PS operating groups saw the strongest CC growth, at 6%.

  • Products, Accenture’s largest OG, has seen consistent mid-sngle digit CC growth for the last six quarters, and is experiencing growth in both consulting and outsourcing
  • H&PS growth moderated as guided (6% y/y CC growth) following nine quarters of double-digit growth. Health continues to drive growth. Public Service is growing in the Americas but down in EMEA. Accenture expects further moderation in HP&S growth in Q2 before building in H2.

The weakest OG is CMT (-2% CC y/y); in Europe the NSN contract will continue to impact growth until H2 FY14.  Management claims to be seeing demand for transformation-led projects, with progress in the Americas in electronics and high tech.

The other OG where Accenture has been repositioning is Resources. After enjoying double digit growth in FYs 2011 and 2012, driven by the consulting business, several major contracts started to wind down in FY 2012, and Accenture has also been challenged in natural resources in Brazil. It has been developing its offerings portfolio in areas such as digital and industry-specific “business services” (See NelsonHall Key Vendor Assessment on Accenture) and claims it is seeing pockets of growth in areas such as its energy business.

Accenture continues to invest in portfolio development.

Earlier this month, it launched two new growth platforms:

  • Accenture Digital, comprised of Accenture Interactive (digital marketing, a capability developed through a series of recent acquisitions), Accenture Analytics and Accenture Mobility. The new unit has 23k personnel globally
  • Accenture Strategy, where Accenture is combining its strategy, technology and industry-specific operations capabilities. Expect to see marketing in 2014 on how the new practice offers a differentiated capability from other consulting and IT service firms.

Other recent acquisitions include those of:

Accenture continues to pursue a strategy of seeding key growth areas with an acquisition to gain and then develop a differentiated capability on which to build; it has done this well in banking BPO.

In summmary, Accenture emphasizes its confidence of topline growth accelerating in H2, a consequence of

  • The uptick in large transformation programs, including the 13 $100m+ deals signed during the quarter
  • The investments in creating the new “business services” such as Accenture post-trade services
  • Acquisitions made to seed future organic growth.

Accenture’s focus on shareholder value is undeniable. It continues to buy back shares (at ~$722m this quarter), and in November, it paid a semi-annual cash dividend of $0.93 per share, a total of $630m, a 15% increase over the May dividend.

Clearly, the push on getting SI sales signed is helping improve consulting, which has had a few patchy quarters.

Nevertheless, the reported topline growth this quarter was 1.9%; we estimate organic growth was in the region of 1%, not exactly stellar performance.

And there are challenges still to be addressed. Accenture has not been performing so well recently in its growth markets businesses, in key countries such as Brazil. Indicating the attention that is being paid to this, the company announced earlier this month that it has created a new leadership role with a remit to enhance Accenture’s position in growth markets. We look forward to hearing of future progress.

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