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Accenture Q1 FY15 Results: Continues to Build Momentum

Accenture Q1 FY 2015 results are out today: 7.3% reported net revenue growth to $7,896m, operating margin at 15.0%. Full details are here.

Accenture CEO Pierre Nanterme opened the analyst call referring to an “excellent” first quarter and saying “I am extremely pleased with our results”.

And here’s why:

  • The 10% topline growth in local currency is the best Accenture has achieved since Q1 FY12 – and continues three quarters an upwards trend. Accenture claims that inorganic growth accounts for 1-1.5% of this total growth – the company is clearly taking market share. And the growth is broad based, across:
  • Verticals: four of the five Operating Groups achieving double-digit growth. Communications, Media & Technology, which contains some soft sectors, is for Accenture a star performer, delivery 15% y/y growth in CC. Management referred to strong double-digit growth in both consulting and outsourcing across all three industries. Clearly its digital services offerings are very relevant. Digital related services were also a strong growth driver across its Heath & Public Services OG, which delivered 13% growth.
  • Geographies: all three geographic regions delivered growth of between 9% and 12% - not sure what Accenture is doing in countries (such as Brazil) that have moved from the Americas and EMEA into the new Growth Markets, but it appears to be working. Within Europe, Nanterme highlighted double digit growth in Italy, France, Germany and Norway
  • Service lines, with consulting delivering its highest CC growth rate in three years, at 7% and Outsourcing its highest growth for over two years, at 14%. Nanterme highlighted the new $5bn “Accenture Digital” growth platform as growing at 20% and Operations generated double digit growth in both the BPO and infrastructure services businesses. Looking ahead, he also indicated a resurgence of opportunity for Accenture in big ERP projects in Europe
  • Accenture generated over $800m in FCF and delivered roughly $1.3bn to shareholders through repurchases and dividends.
  • Finally, Accenture has raised its guidance for full FY15 to local currency growth in the range of 5% to 8%, up from prior guidance of 4% to 7%.

So were there any weaknesses? Well, the $7.7bn in new bookings for the quarter was the lowest for some time – but Accenture has indicated in the September earnings call that bookings would be lighter in Q1 and then build up. Management claimed to be “pleased” with the portion of new bookings that will be recognized as revenues this fiscal and to be see positive trends in its overall pipeline. With the raised revenue guidance for FY 2015, this not an issue.

 

The 20 bps margin expansion was entirely due to significant reductions in S&M and G&A as a % of revenue, with S&M down 110 bps to 11.5% and G&A down 50  bps to 5.6% - gross margin was up: management attributes this to increased investment in recruitment and training (indeed headcount is up 13% y/y, with headcount in Accenture’s Global Delivery Network (GDN) up 17.4% to over 218k.

The current softness in the oil & gas sector is likely to have a short term impact on Accenture’s traditional consulting business in this industry group, adding to the impact of having several large SI projects end or transitioning to smaller phases. Energy industry group is an estimated $1.7bn business which for Accenture: we estimate that consulting and SI accounts for somewhere in the region of $750m in annual revenue to Accenture (or 2.5% of total revenue). And Accenture has been investing with SAP in next generation services for the upstream sector.

 

Accenture has consistently demonstrated its ability to be ahead of the curve in identifying and investing in new growth areas that will define the market. This quarter’s results, for example, show Accenture enjoying the benefits of investments it has been making in recent years in digital services and in industry-specific BPO.

NelsonHall will be publishing an updated Key Vendor Assessment on Accenture next week.

 

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