TBR 4Q10 Accenture Report


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Accenture will continue to excel at finding pockets of demand and meeting client needs as the business environment improves across developed economies through 2011.

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TBR 4Q10 Accenture Report

  1. 1. Technology Business ResearchAccelerating Customer Success Through Business Research TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .
  2. 2. PROFESSIONAL SERVICES BUSINESS QUARTERLYSMAccentureFourth Calendar Quarter 2010First Fiscal Quarter 2011 Ended Nov. 30, 2010 TBR OUTLOOK - POSITIVE TBR SCORE (0-10 SCALE)  5.96Publish Date: Jan. 12, 2011Author: Elitsa Bakalova (elitsa.bakalova@tbri.com), PSBQ AnalystContent Editor: Alison Crawford, PSBQ Senior Analyst/ TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .Project Manager
  3. 3. Contents TBR Company Analysis Company Data Models 3 Executive Summary 28 Income Statement 8 Strategy Overview 29 Balance Sheet 11 Corporate SWOT Analysis 30 Service Line Model 14 Financial Model Strategy 31 Operating Group Model 18 Go-to-Market & Services Strategies 32 Geographic Model 22 Alliance & Acquisition Strategies 33 Operating Expense Model 24 Geographic Analysis 35 Financial Strategy Graphs 25 Resource Management Strategy 37 Go-to-Market Graphs SM 27 Future SOFTWARE BUSINESS QUARTERLY TBR Outlook 38 Resource Management Graphs 40 Acquisitions Table 41 Portfolio of Services Table 42 Quarterly Signings Tables 50 Strategic Alliances Tables 52 Worldwide Locations Table3 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  4. 4. Executive SummaryExecutive Summary TBRNew talent and leadership will strengthen Accenture’s focus on meetingclient demand during 2011Key Developments • Accenture is returning to sustainable top-line growth, which, coupled with its stable profit levels, will help the company achieve its long-term profitable growth aspirations.Accenture’s revenue Accenture’s revenue exceeded its guidance range, reaching $6.05 billion, the highest levelis growing and since 2Q08. Consulting & SI, which were hit hard by the recession, are now contributing toincreased signings Accenture’s growth and providing growth opportunities. The company indicates that moreand demand suggest 1 clients have confidence in their businesses and will make more investments in 2011.business growth Lingering economic uncertainty in some geographies (e.g., in Europe), may provide challenges for Accenture during FY11; however, the company’s ability to adjust its portfolio to the market environment positions Accenture for long-term gains.Accenture is making • Accenture continued to leverage acquisitions to expand its offerings and capabilities (e.g.,tuck-in acquisitions three acquisitions announced in November). Accenture’s acquisition strategy remainsto fill gaps in its focused on relatively small-scale, tuck-in acquisitions to fill gaps in its offerings (e.g.,portfolio and TBR SOFTWARE BUSINESS QUARTERLYSM and expand its capabilities and global reach. expand its software offerings)support organic • In FY11, TBR believes Accenture will make more small-scale acquisitions, given its ability togrowth fund such transactions, as well as its history and expertise in integrating companies. 1 • Accenture continues to strengthen its Global Delivery Network (GDN), adding new facilitiesAccenture is in key lower-cost locations (e.g., three new sites in the Philippines). TBR believesexpanding its global Accenture’s GDN is a competitive differentiator for the company due to its global spreadservice delivery (not limited to one or two regions); the global spread allows the company to serve clientscapabilities according to their needs at competitive prices. TBR expects Accenture will further develop 1 its GDN, and LATAM is one example where the company can grow its resources.Accenture has a new • Bill Green, chairman and CEO of Accenture, is stepping down as CEO at the end of 2010CEO, but maintains after six years. Pierre Nanterme, Accenture’s incoming CEO, is fully committed to achievingthe same strategy the goals the company has set for its FY11.4 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  5. 5. Executive Summary TBRAccenture is capturing the wave of demand, as its revenue and signings aresteadily improving and more business opportunities are on the horizonTBR Position: ACCENTURES 4Q10 PERFORMANCE VS. EXPECTATIONSAccenture will continue to excel at finding pockets of (in $ millions) Consensus Guidance Range Actualdemand and meeting client needs as the business Accenture Net Revenue $5,620 $5,600 - $5,800 $6,046environment improves across developed economies Accenture Operating Income N/A N/A $827through 2011. Accenture Non-GAAP EPS $0.75 $0.75- $0.95 $0.81 • Accenture will continue to focus on profitable ACCENTURES 1Q11 GUIDANCE AND EXPECTATIONS growth, and driving its business from several (in $ millions) TBR Estimate Consensus Guidance Range dimensions (e.g., core business, high-growth Accenture Net Revenue $5,736 $5,570 $5,600 - $5,800 offerings and geographic expansion) will be key to Accenture Operating Income $774 N/A N/A its success. Accenture Non-GAAP EPS N/A $0.69 $0.8- $0.95 • Accenture’s ability to serve clients across the whole value chain will help the company gain traction as the economy and investments improve in 2011. Accenture Corporate Strategies TBR SOFTWARE BUSINESS QUARTERLYSM • The return of consulting & SI demand, which • Achieve profitable growth (grow revenue by 8.0% to supported Accenture’s bookings in the service area, 11.0% in local currency and reach operating margin of indicates that clients are increasingly open to invest 13.6% to 13.7% in FY11). in areas such as transformation and growth, as well as operational excellence. By leveraging its strong • Expand business from three dimensions: consulting & SI capabilities and brand, Accenture • Refreshed core business (consulting, technology and will reap further benefits in the near term. outsourcing services) is the primary growth engine. • Hiring activities will continue during FY11 at similar • In addition to core business, grow in service areas – levels to FY10. The key to success is Accenture’s cloud, cybersecurity, analytics, digital services, smart ability to quickly deploy people, allowing the grid, mobility and sustainability. company to not only generate operational • Geographic expansion in six strategic growth markets efficiencies but also meet increasing market (BRIC, Mexico and South Korea) and strengthening demand and successfully provide its improved position in mature markets. offerings portfolio. • Develop talent and maintain a strong balance sheet. 5 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  6. 6. Executive Summary TBRConsulting and SI rebounded strongly, and along with outsourcing,will contribute to overall growth Quarterly Segment Performance 4Q10 Growth Segment Key Changes & Drivers Trends to Monitor Revenue Y/Y • In Consulting, Accenture will see more work in 2011 in areas such as • Accenture’s Consulting & SI operational excellence, growth and business grew across verticals innovation of technology such as financial services, infrastructure. resources, products (grew • SI is rebounding and showing Consulting revenue in APAC), $3.6 communications & high-tech and 14.3% strength in key areas such as & SI billion healthcare (in the Americas). assisting in post-merger integration and rationalization of technology • TBR SOFTWARE SI accounted for Consulting & BUSINESS QUARTERLYSM platforms. 59.0% of net revenue, up 100 • An improving Consulting pipeline, basis points from 58.0% in 4Q09. up 25.0% year-to-year in 4Q10, will help Accenture grow its signings. • Technology Outsourcing is well- • Accenture’s Outsourcing positioned for growth, as clients business grew in verticals such as continue to seek to optimize their resources, communications & $2.5 costs. Outsourcing 9.5% high-tech and health & public billion • In BPO, clients look for cost benefits service (driven by the U.S. in F&A, procurement and industry- Federal sector). specific processes largely in North America and Europe.6 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  7. 7. Executive Summary TBRProfitable growth will be achieved by combining a focus on costmanagement with operational excellenceRevenues• Accenture’s net revenue grew 12.7% year-to-year to $6.05 TBR ACCENTURES NET REVENUE GROWTH AND PROFITABILITY Net Revenue Growth Year-to-year $7,000 30.0% billion in 4Q10. Improving demand in Consulting & SI and $6,000 $5,571 $5,421 $6,046 $5,736 20.0% $5,383 $5,176 strong Outsourcing demand is supporting revenue growth; In $ Millions $5,000 10.0% 12.3% 10.8% however, year-to-year comparisons remain easier due to top- $4,000 -1.7% 8.3% 5.3% 0.0% line contractions during the past quarters. $3,000 $2,000 -10.6% -10.0% -20.0%Expenses $1,000 $445 $400 $491 $445 $535 $479 -30.0%• SG&A expenses as a percentage of revenue fell 70 basis points $0 -40.0% from 19.2% in 4Q09 to 18.5% in 4Q10, resulting from lower 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Es t. G&A costs to actively manage its cost structure and a Net Revenue Net Income Revenue Growth Yea r-to-yea r SOURCE: TBR AND ACCENTURE reduction in bad debt reserve. Higher business development costs caused increases in sales and marketing costs as Accenture focused on growing its pipeline and bookings.Margins TBR SOFTWARE BUSINESS QUARTERLYSM• Gross margin was 32.2%, down 90 basis points from 33.1% in ACCENTURES GROSS AND OPERATING PROFIT AND TBR 4Q09 due to higher subcontractor use and higher recruiting PROJECTIONS and training, especially for new employees, as Accenture 40% 33.1% 34.7% 34.0% focused on satisfying demand and driving growth. Gross and Operating Margin 32.7% 32.2% 32.9% 30%• Operating margin decreased 20 basis points year-to-year to 13.7% in 4Q10, with improved operating margins in three of 20% 13.9% 14.4% 13.2% 13.7% the operating groups, excluding Resources and Health & Public 12.6% 13.5% 10% Service, which had lower contract profitability in some of the public service areas and higher selling costs as Accenture looks 0% for new business. 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Es t. Gros s Ma rgi n Opera ting Ma rgi n• Accenture’s goal to have an operating margin of 13.6% to SOURCE: TBR AND ACCENTURE 13.7% for FY11 is attainable due to its overall cost management and focus on operational excellence.7 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  8. 8. Executive Summary TBRAccenture’s scores reflect its expanded revenue base, stable profitabilityand high utilization TBR Company Average Standard CALENDAR QUARTER RESULTS TBR SCORING SUMMARY:FINANCIAL METRICS Score Figure in Class Deviation/2 4Q09 1Q10 2Q10 3Q10 4Q10Operating Margin 5.65 13.7% 9.7% 6.1% Financial Model Strategy: 5.73 5.91 5.96 6.03 6.23Current Ratio 4.42 1.47 1.77 52.4% Go-to-Market & Services Strategies: 5.89 6.23 6.68 6.31 6.46Debt-to-Asset Ratio 3.65 0.74 0.57 12.7% Resource Management Strategy: 5.37 5.10 5.03 4.97 5.19Return on Assets (TTM) 6.59 15.2% 8.1% 3.4% TOTAL AVERAGE TBR SCORE: 5.66 5.75 5.89 5.77 5.96Return on Equity (TTM) 8.17 55.7% 19.2% 11.5%TOTAL AVERAGE TBR SCORE 6.23 TBR Company Average StandardGO-TO-MARKET & SERVICES METRICS Score Figure in Class Deviation/2 Accenture is outperforming its peersRevenue (in $ Millions) 7.64 $6,046 $2,421 $1,372 through its financial metrics, dueRevenue Growth YTY 5.21 12.3% 9.6% 13.4% largely to its stable operating incomeBacklog/Revenue 6.50 2.49 1.92 0.38 and net income. Accenture’s solidDay Sales Outstanding 6.96 42.38 64.96 11.49 revenue in 4Q10 has led theTOTAL AVERAGE TBR SCORE SOFTWARE BUSINESS QUARTERLY 6.46 SM TBR company to outperform its peers in TBR Company Average Standard the Go-To-Market & Services metrics,RESOURCE MANAGEMENT METRICS Score Figure in Class Deviation/2 as this was the second-highestGross Margin 5.25 32.2% 30.7% 6.0% quarterly revenue ever reported byOperating Expenses as a % of Revenue 5.27 18.5% 19.8% 4.7% Accenture.Revenue per Employee (TTM) 4.00 $112,948 $182,013 $69,263Operating Income per Employee (TTM) 4.86 $15,230 $18,169 $21,461Utilization Rate 8.35 87.0% 77.2% 2.9%Turnover 4.62 15.0% 14.1% 2.4%TOTAL AVERAGE TBR SCORE 5.19Key Represents an area where Accenture is currently challenged versus peers Represents an area where Accenture is outperforming its peers Represents an area where Accenture is neither significantly outperforming nor underperforming its peers 8 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  9. 9. Strategy Overview TBRAccenture is seeing success (e.g., revenue and signings growth) due to itsfocus on increasing its business momentum by delivering value to clients Key Strategies • Accenture’s reshaped portfolio (i.e., improved • Increase Accenture’s business momentum by focusing on delivering core offerings and investment in new offerings Overall like analytics, cloud computing, etc.) is proving value to the client. attractive to clients. Accenture is seeing improvement in its top line and signings as well as a healthy bottom line – momentum that will continue during FY11. Deliver profitable growth: • In addition to investment in growth, Accenture Financial • Grow FY11 revenue by 8% to 10% in has taken steps to run as a high-performance local currency, faster than the market. business (e.g., focus on operational • Reach operating margin of 13.6% to efficiency, higher offshore TBR SOFTWARE BUSINESS QUARTERLYSM leverage, automation for service 13.7% in FY11, up year-to-year by 10 to 20 basis points. delivery, creating the role of chief performance officer in FY10). Given such measures, TBR expects the company to reach its FY11 profitability targets. Grow business in three dimensions: • Accenture will continue to attract clients with its Go-To-Market • Refreshed core business is core business – consulting, technology and Accenture’s primary growth engine. outsourcing services – and will see near-term success given the improving market environment. • Develop capabilities outside of core business in growth service areas. • Accenture continues to gain traction in areas like analytics (currently has ~70 client engagements). • Expand geographically in six strategic TBR notes that the competition in those service growth markets and gain traction in areas is increasing due to growth opportunities, new markets. which will challenge Accenture’s development.9 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  10. 10. Strategy Overview TBRAccenture is using alliances and acquisitions to develop its portfolio andis investing in hiring and training to address increasing market demand Key Strategies • Make strategic alliances to expand in • Alliances are key to the development ofAlliances & new areas of technology and vertical Accenture’s portfolio, especially in new serviceAcquisitions specific-offerings. areas with high-growth potential such as cloud computing, analytics and public sector offerings • Leverage tuck-in acquisitions to fill gaps (e.g., Component Tax Solution powered by in its portfolio. Oracle). • TBR expects additional tuck-in acquisitions during FY11, as Accenture looks to supplement its organic growth and fill gaps in its portfolio, IP and vertical expertise. Recruit people to expand GDN and • • Accenture will continue to increase its headcountResources & accommodate for demand. due to hiring initiatives related to market growthInvestments TBR SOFTWARE BUSINESS QUARTERLYSM • Develop and increase leverage of expectations and its focus on building out global delivery capabilities. resources in the GDN. • Invest in automation to offer • The development and shifting of service delivery differentiated, less risky to the GDN – especially for outsourcing and, implementations with more rapid ROI. increasingly, SI – will support Accenture’s long- term profitability and attract clients. • Invest in training (e.g., technical, functional, industry, managerial and • Standard frameworks such as the Global Delivery leadership) and professional Suite are creating service delivery efficiencies development to gain the necessary that also generate bottom-line benefits and help skills to provide high-quality services. decouple the linearity of headcount growth.10 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  11. 11. Strategy Overview TBR Hiring will help Accenture address improving market demandTBR Assessment of Key Strategy: Recruit people to expand GDN and accommodate for demand Accenture has been expanding its headcount to address improving demand in the IT Accenture has services market and support its future growth.shifted 77% of its • During 4Q10, Accentures headcount reached 210,951 people, up 20% year-to-year from GDN headcount 4Q09. The notable change is the uplift in Accenture’s GDN headcount as well as in itsto near/offshore Consulting & Solutions people. regions and will • The GDN reached 120,000 people in 4Q10, or 57% of Accenture’s total headcount, up from continue toexpand in lower- 94,800 in 4Q09. Near/offshore resources now account for 77% of the GDN headcount,cost regions and which TBR believes will help the company improve its profitability. across service • The key focus for lower-cost resource growth is expansion in India and the Philippines. lines with • India has ~53,000 people and now accounts for nearly 45% of Accenture’s GDN and improving has 19 global delivery centers of the 50 total GDN centers. demand • In the Philippines, Accenture is adding three new outsourcing facilities, growing headcount from ~20,000 in 4Q10 to 25,000 in 3Q11 (end of FY11). TBR SOFTWARE BUSINESS QUARTERLYSM • Driven by signs of improving demand, Accenture is now ACCENTURES HEADCOUNT AND GROWTH boosting its Consulting & Solutions headcount (up 27%TBR 250,000 year-to-year to 130,983). This headcount was declining Headcount Growth Y/Y 35.0% 200,000 for most of 2009, as Accenture was adjusting capacity to 25.0% the challenging market. New talent will help theHeadcount 150,000 15.0% company accelerate consulting & SI performance and 100,000 5.0% accommodate for growing consulting bookings (up 16.4% 50,000 -5.0% year-to-year in 4Q10). 0 -15.0% • During the rest of FY11, Accenture will continue with its 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 global hiring initiative with the goal of hiring at least Total Hea dcount Gl oba Del i very Network (GDN) 64,000 people across its GDN. We believe Accenture will Total hea dcount % Δ y/y GDN hea dcount % Δ y/ySOURCE: ACCENTURE AND TBR achieve its goals given its value proposition (e.g., competitive pay and career growth opportunities). 11 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  12. 12. Corporate SWOT Analysis TBRAccenture’s well-developed resources and capabilities allow the companyto gain business growth opportunities Strengths Opportunities • Seamless transition of executive power in CEO • Target growth opportunities in emerging succession (new CEO as of January 1, 2011) markets • Broad Global Delivery Network and developed • Increasing demand for analytics to support presence in low-cost locations Accenture’s growth • Leverage of a standard framework for building • Expansion of Global Delivery Network in Latin and delivering services America due to demand for services delivered • Alliance relationships with 150+ partners from the region • Strong vertical market focus and expertise • Stabilizing consulting/SI demand can help • Core competency to attract, hire, train, deploy Accenture’s consulting & SI business stabilize in and retain skilled talent the long run • Accenture’s Technology Labs turn technology • Growth potential of cloud computing can help into business results Accenture gain traction TBR SOFTWARE BUSINESS QUARTERLYSM Weaknesses Threats • Price competitiveness is limited in • Slow and uneven economic recovery in Europe commoditized/sole sourcing deals – unlike in may challenge Accenture’s near-term large/complex engagements performance in the region • Recruiting and training costs tied to hiring as • Indian vendors are becoming more active in well as wage and salary increases used as means business consulting and remote management to hold off rising attrition are having a ITO temporary negative impact on cost of services • Competition from other MNCs (e.g., IBM, HP/EDS, etc.) and European firms for top clients • Competition for lower-cost labor by other MNCs, as well as Indian and European vendors, may challenge hiring in India and the Philippines12 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  13. 13. Corporate SWOT Analysis TBR Accenture’s new CEO will not change the company’s strategy and outlook TBR Strength Assessment: Seamless transition of executive power in CEO succession Pierre Nanterme, formerly head of Accenture’s Financial Services group, is Accenture’s new CEO as of January 1, 2011. TBR believes the CEO change is business as usual and Accenture has Accenture is taken necessary steps to ensure a smooth transition, keeping its future strategy intact. appointing CEOs • Accenture announced the change in its top leadership in October 2010. The goal was to with a long provide enough time for the new CEO to get up to speed before stepping into his new role. history with the • Former CEO Bill Green, who has served as Accenture’s CEO since 2004, will remain Chairman company (25+ of the Board and will act as an advisor to Nanterme and help guide strategic planning. years) and allowing former • TBR believes this executive enables Accenture to smoothly transition executive power to CEOs to retain Nanterme, who has been chief executive of the financial services group since 2007 and has been with the company for 27 years. the Chairman position to help • Nanterme brings knowledge and experience in financial services and leadership development guide the capabilities, which will contribute to Accenture’s strategy of strengthening its human capital company to and developing its global service delivery capabilities. TBR•SOFTWARE BUSINESSlaid out its SM While Accenture QUARTERLY FY11 growth and margin targets in September, prior to the CEO future business success change, the new CEO is fully committed to achieving the goals the company has set for its new fiscal year. Nanterme will find the set financial goals achievable given the signs of global economic improvement, and the strength of the Accenture operation he is inheriting. Accenture’s Last Three CEOs • Nanterme held the fort in the financial services • 1989 – Accenture established as Andersen Consulting. vertical during harsh economic times and workedSource: Accenture and TBR. toward the gradual improvement in the vertical’s • Nov. 1999 – Joe W. Forehand named CEO (26 years with the company at that time). performance as the global financial services • Sept. 1, 2004 – Bill Green became CEO (28 years with the industry stabilized. IP asset-based solutions that company at that time); Forehand retained the position of help service delivery automation and provide Chairman until Sept. 2006, when it was transferred to Green. benefits on the profitability side in financial • Jan. 1, 2011 – Pierre Nanterme became CEO (27 years with services can be expanded to other areas. Accenture); Green retained the position of Chairman. 13 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  14. 14. Corporate SWOT Analysis TBRDevelopment of skills and talent is a key aspect of Accenture’s businessTBR Strength Assessment: Core competency to attract, hire, train, deploy and retain skilled talent People are Accenture’s key asset and the company has developed a competency, which is a key strength in TBR’s view, to attract, train and retain professionals with the necessary skills to serve its clients. Accenture is also extending its training skills to educate people around the world as part of its corporate citizenship, thus developing potential employees. Accenture is • Accenture is investing in technical, functional, industry, managerial and leadership skill investing in development and training. The company also has a performance management system and training and career philosophy that rewards individual performance and teamwork. employee • Such initiatives help Accenture establish a dedicated and educated workforce that isdevelopment to committed to the company’s values and business development strategies. ensure its • In addition, employee development helps Accenture curb attrition, which in 4Q10 reachedpeople have the 15%, up from 12% in 4Q09, but declined 200 basis points sequentially from 17% in 3Q10. right skills and • Accenture considers people its greatest asset and TBR believes this is the right attitude, as the are provided provision of consulting, SI and outsourcing (e.g., BPO) is largely a people-focused effort. with career growth TBR SOFTWARE BUSINESS QUARTERLYSM industry rankings as a preferred company to work for. The • Accenture is also recognized in Vault’s Tech Consulting Firm Rankings 2011: Best to Work For placed Accenture at No. 3 for opportunities Formal Training and No. 4 for Promotions, outpacing competitors like IBM and Capgemini. • In May 2009, Accenture launched its global “Skills-to-Succeed” corporate citizenship initiative, which allows people to be educated with skills to get a job or build a business. Accenture’s goal is to educate 250,000 people around the globe by 2015, and the company will contribute $100 million in the next three years in global and local giving to support the initiative. ACCENTURES TRAINING COSTS • Recruiting and training costs tied to hiring, inTBR addition to wage and salary increases used toFISCAL YEAR (IN $ THOUSANDS*) FY07 FY08 FY09 FY10 hold off rising attrition, are having a temporaryTraining costs $775,768 $985,929 $794,218 $591,229% of total revenue 3.9% 4.2% 3.7% 2.7% negative impact on cost of services (rose to 67.8%Training costs per employee $4,575 $5,278 $4,483 $2,900 of net revenue in 4Q10 from 66.9% in 4Q09). We* In $ thousands except for training costs per employee expect this trend to remain in the next severalSOURCE: ACCENTURE AND TBR. quarters as hiring continues.14 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  15. 15. Financial Model Strategy TBR TBR projects continued top-line advancement during FY11 as strength across segments fuels an uptick in revenue growth Revenue Performance Revenue & Growth Drivers ACCENTURES NET REVENUE, GROWTH AND PROJECTIONS 4Q10 Net Revenue: $6.05 billion, 12.3% YTYTBR $30 20.0% • Net revenue reached $6.05 billion in 4Q10, improving Net Revenue Growth Year-to-year $26.1 $25 $24.0 10.0% 12.3% year-to-year and 11.5% sequentially. This was $22.2 $20 8.3% 12.3% 10.8% 8.0% 8.7% the third consecutive quarter in which Accenture saw 5.3% 6.1% -1.7% 0.0% year-to-year revenue growth after five quarters ofIn $ Billions $15 -10.6% -10.0% revenue declines in 2009 and 1Q10. $10 $5.4 $5.6 $5.4 $6.0 $5.7 • Improving demand across consulting & SI, areas $5.2 -20.0% $5 previously challenged, and stable demand in $0 -30.0% outsourcing are contributing to revenue growth. 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 CY10 CY11 CY12 Net Revenue Revenue Growth Yea r-to-yea r Es t. Es t. Es t. Revenue and Growth Outlook TBR SOFTWARE BUSINESS QUARTERLYSM NOTE: Annual revenue and projections are for calendar 2010, 2011 and 2012, respectively. • TBR forecasts Accenture’s revenue will be close to SOURCE: ACCENTURE AND TBR $5.73 billion in 1Q11, growing 10.8% year-to-year. TBR • TBR believes that after a bout of weakness in the firm’s ACCENTURES TRAILING 12-MONTH REVENUE $26 consulting & SI segment over the past few quarters, $23.7 $23.4 stronger indications of improvement in the business $24 $22.4 $21.6 $20.9 $20.8 $21.3 $21.6 $22.2 $22.8 line will help Accenture yield a fourth consecutive $22 quarter of TTM revenue growth, helping the company In $ Billions $20 grow to $22.8 billion in 1Q11 on a TTM basis from $18 FY09 FY10 $20.8 billion in 1Q10. $16 • Revenue generation in both Accenture’s consulting & SI $14 and outsourcing segments will continue to improve in 1Q08- 2Q08- 3Q08- 4Q08- 1Q09- 2Q09- 3Q09- 4Q09- 1Q10- 2Q10- 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 all geographic markets through 2011 as the company SOURCE: ACCENTURE FINANCIALS AND TBR Es t continues to broaden its client base and vertical expertise. 15 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  16. 16. Financial Model Strategy TBR Improving demand, which drives higher training and subcontractor costs, is putting pressure on Accenture’s Cost of Sales Cost & Margin Performance Cost Structure & Margin Performance 4Q10 Operating Expenses: $1.12 billionTBR OPERATING EXPENSES AS A PERCENTAGE OF SALES 22.0% Accenture’s cost of services (COS) for 4Q10 totaled $4,101 million, up 14% from 4Q09. 17.0% Cost of 12.9% COS as a percentage of revenues increased 12.0% 11.6% 12.0% 12.8% 12.1% 12.0% Services, 90 basis points to 67.8% from 66.9% in 4Q09. Gross 7.0% 7.7% 8.0% 7.4% COS rose due to higher subcontractor and 8.0% 6.4% 7.4% Profit 2.0% 0.1% 0.1% 0.1% 0.0% 0.0% 0.0% training costs tied to improved demand and -3.0% compensation increases. 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Es t. Sales and marketing grew to 12.1% of Reorga ni za tion cos t (benefi t) Genera l a nd Admi ni s tra tive revenues from 11.6% in 4Q09 due to Sa l es a nd Ma rketingSOURCE: ACCENTURE AND TBR investment in business development and TBR SOFTWARE BUSINESS QUARTERLYSM sales. G&A fell 130 basis points 6.4% of SG&ATBR ACCENTURES GROSS AND OPERATING PROFIT AND revenue to 7.7% in 4Q09 due to active PROJECTIONS management of cost structure (drove an 80- basis-point decline) and reduction in badGross and Operating Margin 40% debt reserve (drove a 50-basis-point decline). 33.1% 34.7% 34.0% 32.9% 33.4% 34.3% 35.0% 32.7% 32.2% 30% • Operating margin decreased 20 basis points year-to-year to 13.7% in 4Q10, dragged 20% 13.9% 12.6% 14.4% 13.2% 13.7% 13.5% 13.5% 13.7% 14.0% down by a decline in profitability in Health 10% Operating & Public Service and Resources. Margin • Accenture remains focused on keeping 0% and 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 CY10 CY11 CY12 Outlook operating margins in the 13.6% to 13.7% Gros s Ma rgi n Opera ting Ma rgi n Es t. Es t. Es t. range, which we believe will be anNOTE: Annual gross and operating profit and projections are for calendar 2009, 2010 and 2011. achievable goal given cost-managementSOURCE: TBR AND ACCENTURE and efficiency techniques. 16 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  17. 17. Financial Model Strategy TBRConsulting & SI revenue is now growing with strength in management andIT consulting, while outsourcing services remain in demand Service Line Performance Service Line Drivers Service Line Financials TBR ACCENTURES SERVICE LINE REVENUE (IN $ MILLIONS) • Consulting & SI revenue increased 14.3% 100% year-to-year (as reported) in 4Q10, % of Net Revenue 75% $2,262 $2,244 $2,346 $2,326 $2,478 $2,467 growing in all verticals except for Health & Public Service due to declines in public 50% services in EMEA and Americas. 25% $3,120 $2,932 $3,225 $3,094 $3,568 $3,270 • In management consulting, clients are hiring to achieve operational excellence 0% Consulting along with growth. In technology 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est. & SI consulting, clients are looking to drive Outsourcing Consulting & Systems Integration down IT costs through virtualization and SOURCE: TBR AND ACCENTURE cloud computing, rationalize legacy TBR SOFTWARE BUSINESS QUARTERLYSM operations and improve security. The SITBR ACCENTURES SERVICE LINE REVENUE AND business is showing increasing strength. PROFITABILITY We expect Accenture will continue to 75% 58.0% 56.6% 57.9% 57.1% 59.0% 57.0% proactively and successfully manage the% of Net Revenue 60% 42.0% 43.4% 42.1% 42.9% shift of SI work to lower-cost locations. 45% 41.0% 43.0% 30% • Outsourcing revenue rose 9.5% year-to- 15.0% 14.5% 15.0% 14.8% 14.8% 15.1% year (as reported) to $2.48 billion from 15% 12.6% 13.6% 11.8% 11.4% $2.26 billion in 4Q09. 0% 9.7% 11.4% • Outsourcing revenues reflected demand 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Es t. Outsourcing Cons ul ting & SI Revenue Outs ourci ng Revenue from clients around cost-effective BPO Cons ul ting & SI Opera ting Ma rgi n* Outs ourci ng Opera ting Ma rgi n* solutions centered around finance andSOURCE: TBR AND ACCENTURE * Operating margin is a TBR estimate accounting and procurement, as well as demand for industry-specific processes. 17 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  18. 18. Financial Model Strategy TBRThe financial services vertical will see further growth, while the publicsector will see temporary challenges due to restricted spending in Europe Operating Group Performance Operating Group DriversTBR ACCENTURES REVENUE BY OPERATING GROUP Operating Group Financials (IN $ BILLIONS) Communications & High-Tech increased 10.8% 100% year-to-year. Consulting grew due to demand for % of Net Revenue $0.95 $0.85 $0.93 $0.86 $0.93 $0.85 75% $0.96 $0.93 $1.00 $1.01 $1.13 $1.08 strategic sourcing, globalization, cost take-out, CHT 50% $1.10 $1.08 $1.15 $1.12 $1.30 $1.24 and customer acquisition and retention; $1.16 $1.11 $1.18 $1.16 $1.28 $1.22 outsourcing grew with focus on cost take-out and 25% $1.20 $1.21 $1.31 $1.27 $1.40 $1.34 operational efficiency. 0% 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est. FS grew 17.9% year-to-year in 4Q10 with record Other Health & Public Service* Financial growth in Consulting; clients looked for services in Resources Financial Services Services post-merger integration, banking and insurance Communications & High-Tech Products*SOURCE: TBR AND ACCENTURE (FS) replatforming, risk and regulatory compliance and TBR SOFTWARE BUSINESS QUARTERLYSM transformation.TBR ACCENTURES OPERATING GROUP PROFITABLITY HPS declined 1.6% year-to-year due to uncertainty 19.0% Health & and challenges in the public sector, largely in% of Net Revenue 17.0% 15.0% Public Europe, which we expect to continue during the 13.0% Service rest of FY11. Accenture saw growth in Consulting 11.0% 9.0% (HPS) in Health in the Americas due to strong 7.0% investment in healthcare improvement. 5.0% 3.0% Products revenue increased 15.9% year-to-year, 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Es t. Products driven by strong growth in both consulting and Communi ca tions & Hi gh-Tech Hea l th & Publ i c Servi ce* Fi na nci a l Servi ces Products * outsourcing across all geographies. Res ourcesSOURCE: TBR AND ACCENTURE Resources rose 17.0% year-to-year due to double-*On Sept. 1, 2009, Accenture formed the Health & Public Service operating group by Resourcescombining various healthcare-related components of its Products operating group with its digit growth in Consulting and Outsourcing.Public Service operating group. Prior-period amounts have been reclassified. 18 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  19. 19. Go-to-Market & Product Strategies TBRInvestments in industry-specific offerings with new technology contentallow Accenture to broaden its client base and geographic coverage4Q10 New Service Announcements: Service Line Strategies • Accenture launched a new large scale Accenture has three growth platforms which emphasize providing biometric identity matching solution high performance to clients. Subject matter experts within the growth called Accenture’s Large Scale platforms work together with Accenture’s operating groups (verticals) Matching Solution. It helps public to develop and deliver solutions. service agencies accurately validate the identity of individuals, whether for • Management consulting growth platform – Grow management identifying potential national security consulting services by placing strong emphasis on operational threats or for refining the delivery of excellence with a cost-containment value proposition to increase government assistance programs and bookings. social services to citizens. The solution • Technology growth platform – Further extend leadership in allows timely and accurate systems integration and technology services. identification while decreasing the • BPO growth platform – Speed up BPO growth with an integrated expenses of identity assurance. BPO organization that delivers industry-specific and cross-industry TBR SOFTWARE BUSINESS QUARTERLYSM services with a transformational value scheme (i.e., combining BPO management consulting with BPO capabilities). 4Q10 Services Stack IO: Accenture’s ability to manage work remotely is generating strong demand for IO, 8 infrastructure outsourcing as clients become increasingly attuned to transferring Consulting &SI % assets due to lighter capital costs (cost optimization is key priority). 57.1% BPO: High demand for cost-efficient solutions in finance and accounting, and BPO, 41% procurement and industry-specific processes was reflected by a solid booking trend produced by Accenture in 4Q10, specifically in Europe and North America. Outsourcing 42.9% AO: Demand for AO is generated by the strong value proposition offered to AO, 51% clients. AO is often bundled with other outsourcing services. Clients are moving up the value chain into optimized application portfolios and business SOURCE: TBR ESTIMATES. performance, creating opportunities for Accenture.19 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  20. 20. Go-to-Market & Product Strategies TBRAccenture’s core, as well as its innovative offerings, will drive bookingsgrowth TBR ACCENTURES TTM NEW BOOKINGS AND Y/Y GROWTHSignings & Pipeline $30,000 25% Year-to-year Growth TTM Bookings $25,000• Accenture’s total bookings rose 14.1% year-to-year to 15% $20,000 $6.31 billion and grew 9.0% year-to-year to $25.8 billion (In $ Millions) 5% $15,000 on a TTM basis due to improving demand, positioning $10,000 -5% the company for top-line growth during the rest of FY11. $5,000 -15%• Consulting bookings, which were hit hard in the 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 challenging economy, continue to grow, up 6.0% year- TTM Cons ul ti ng TTM Outs ourci ng Es t. Yea r-to-Yea r Growth to-year in 4Q10. Management Consulting bookings were strong in Europe and in APAC. Accenture will see SOURCE: TBR AND ACCENTURE more wins in risk management and new market entry. Technology Consulting bookings were strong, and Key 4Q10 Customer Wins clients’ interest in innovation and flexibility is growing. SI bookings reached its highest level in nine quarters, • Hilton Worldwide (U.S.) – Multiyear; application rebounding well following the market turmoil. development and support services TBR SOFTWARE BUSINESS QUARTERLYSM • National Water Company (Saudi Arabia) – Design• Outsourcing bookings increased 28.2% year-to-year but and deploy IT solution for water and waste declined 13.7% sequentially. Accenture benefited from management new client wins, as well as the extension of projects • Proton Holdings (Malaysia) – 21 months; ERP with existing clients. system• There may be some inconsistency in bookings growth • Centers for Disease Control and Prevention (U.S.) between quarters (i.e., Outsourcing booking did not – $3 billion ceiling, 10 years; ID/IQ contract for follow a smooth pattern); however, Accenture will see information management and IT infrastructure positive bookings performance in the near term. The services firm’s improved offerings portfolio (refreshed core • U.S. Navy – $6.3 million, five years; engineering offerings coupled with new areas such as analytics, services (hardware and software maintenance) mobility, etc.) and its mix of cost improvement and • RSA (U.K.) – Three-year contract extension; growth enhancement offerings will continue to attract provide development, implementation, clients. maintenance services20 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  21. 21. Go-to-Market & Services Strategies TBRAccenture’s investment in sales effectiveness and business developmentstrategies will continue to boost signings and revenue in the long runTBR Assessment of Sales Strategy: Accenture’s strengthened sales initiatives will boost revenue growth Accenture’s global sales organization is comprised of a traditional sales channel supported by a small direct sales channel • Traditional sales channel – This channel is responsible for the bulk of Accenture’s sales. The sales function is tasked to Accenture’s partners, associate partners and managers (or senior executives) – 4,500 people globally. Each client has account executives Accenture’s responsible for the relationship, business development, etc. investment in sales • Direct sales channel – This small, direct sales force covers new clients with whom initiatives and Accenture does not yet work, and is comprised of: business • Equally small and direct sales team in BPO that targets SMBs. development • Direct sales team in applications outsourcing (~80 sales directors globally) and ITO activities for both that works with client partner senior executives. its core business SOFTWARE BUSINESS QUARTERLYSM advisors work with clients to score deals for Accenture and TBR • Third-party advisors. These and new service constitute only a minor portion of the company’s sales force. areas (e.g., cloud, analytics, smart Customer structure – Accenture’s “diamond” clients showcase the company’s focus on grid, etc.) are relationship building generating results • Accenture defines its “diamond,” or “foundation” clients as those having $100+ million, and will bring long-term, established accounts that have a strong relationship with the company. The further success in number of Accenture diamond clients across the globe reached 100 at the end of FY10. the long run • Approximately 20 of Accenture’s diamond clients are located in the United Kingdom, a key region for Accenture’s business. Accenture also has diamond clients in emerging markets (e.g., one diamond client in China, four in Brazil), showcasing its ability to expand geographically and diversify its revenue. • Accenture focuses on building strong relationships with diamond/foundation clients, and the company generates a large share of its business from these clients.21 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  22. 22. Go-to-Market & Services Strategies TBRPricing is stabilizing across markets; however, pricing increases are notexpected to be significant in the near-term • Accenture’s pricing environment remains competitive. • TBR believes the close of 2010 brought about a TBR sees this continuing into the foreseeable future as stabilization of pricing capabilities for vendors heightened competition from Indian vendors and across geographies. TBR forecasts that during 2011, stronger market conditions lead to aggressive pricing the U.S. will experience moderate pricing increases. tactics from competitors. TBR expects Accenture to Pockets of pricing power in EMEA will emerge (e.g., experience moderate pricing traction through 2011, in countries that are experiencing more rapid albeit at an uneven pace among its primary markets. economic recovery such as Germany), but the ACCENTURES U.S. GOVERNMENT HOURLY RATES broader region will stay in a flat-line state, forcingTBR (05/10-05/11) Accenture to keep its finger on the market’s pulse SKILL LEVEL/EXPERIENCE for smaller pockets of pricing traction. APACTITLE 1 2 3 4Business Integration Analyst $91 $100 $114 $123 markets will fare similarly to the U.S. for 2011, withBusiness Integration Consultant $111 $125 $139 $153 opportunities to gain pricing traction becomingBusiness Integration Manager $157 $177 $183 $202 more evident throughout the year.Business Integration Senior Manager TBR SOFTWARE BUSINESS QUARTERLYSM $236 $274 $303Business Integration Associate Partner $316 $347 $378 $417 • In Systems Integration, Accenture continues toBusiness Integration Partner $494 N/A N/A N/A transition its work into a greater offshore mixClient Financial Management Assistant $64 N/A N/A N/A through its global delivery network. TBR believesClient Financial Management Analyst $81 $91 N/A N/A the tradeoff between stronger margins and pricingClient Financial Management Specialist $110 $121 N/A N/A pressure will be a key challenge in this segment.Client Financial Management Manager $157 N/A N/A N/AClient Financial Management Senior Manager $231 N/A N/A N/A • However, TBR believes competitive wageClient Financial Management Associate Partner $340 N/A N/A environments in Accenture’s primary sourcingExecutive Assistant $64 $73 $83 N/ANOTE: Net rates (discount deducted). regions (e.g., India) will allow for the pass-throughSOURCE: TBR AND GENERAL SERVICES ADMINISTRATION. of some cost increases as market demand flourishes for globally integrated service deliveryThe hourly billing rates above are based on Accenture’s General Purpose commands.Commercial IT Equipment, Software and Services government contractwith the U.S. General Services Administration, launched in 2010. 22 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  23. 23. Alliance & Acquisition Strategies TBRAlliances are a strong contributor to Accenture’s competitiveness anddiverse set of service offeringsTBR Assessment of Alliance Strategy: Alliances are a key element of Accenture’s strategy • Accenture’s internal organization, the Accenture Alliances Group, is responsible for forming alliances and partnerships to provide the company with new channels, incremental revenue streams and access to emerging technologies. Accenture Alliances has grown significantly during the last four to five years, from a group of 15 people managing 12 alliances to a global organization of more than 300 professionals. TBR expects • Alliances and partners are centered around the company’s client service business (technology, Accenture will outsourcing, strategy, etc.). The company has an alliance network of more than 150 partners.further expand Major partners include Avanade, Microsoft, IBM, Dell, Oracle, SAP, Symantec, Cisco Systems, HP,its partnership EMC and Alcatel-Lucent. base of Accenture’s alliance announcements during 4Q10 technology • Accenture and Universal Music Group (UMG) formed an alliance in 4Q10 following a successful developers to two-year collaboration to develop and deploy Accenture’s Digital Supply Chain Platform. TBR SOFTWARE BUSINESS QUARTERLYSM broaden its • Accenture and NHN Corporation signed an agreement to work together to develop mobile offerings with applications for smartphones. high-growth • Accenture and BMC Software expanded their relationship in 4Q10; they will work together to potential and develop and implement BMC Business Service Management, as well as consulting andvertical-specific integrating services to BMC’s Professional Services organization. solutions TBR Assessment • Alliances will continue to be vital, allowing Accenture to provide services and solutions in high- growth areas. TBR believes Accenture will continue this trend as a means to gain global traction for its services. NOTE: SEE APPENDIX OF THIS REPORT FOR A FULL LISTING AND ANALYSIS OF ACCENTURE’S ALLIANCES. 23 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
  24. 24. Alliance & Acquisition Strategies TBRSuccessful acquisition integration supports Accenture’s organic revenuegrowthTBR Assessment of Acquisition Strategy: Leverage tuck-in acquisitions to drive inorganic growth Accenture’s acquisition strategy during the past several years has been to make relatively Accenture will small-scale, tuck-in acquisitions to fill gaps in its offerings and expand its capabilities and global reach.remain steadfast in • Accenture’s main goal is to grow its business organically; however, the company supplementssupporting organic organic growth with acquisitions when it finds the right transaction in terms of price and growth via small- capabilities that will be added. scale strategic • Accenture’s M&A focus is to acquire companies without disrupting its overall business direction acquisitions and performance, while at the same time augmenting its existing resources and capabilities. through FY11 • TBR believes Accenture will be looking to make more small-scale acquisitions, given its ability to fund such transactions as well as its history and expertise in integrating companies. TBR SOFTWARE BUSINESS QUARTERLYSM Activity in 4Q10 (Fiscal 1Q11) Accenture’s Acquisition Acquisition Estimated No. Company Acquisition Synergies Date of Employees CAS Computer CRM and mobility software for the consumer November Anwendungs-und products industry. Augments Accenture’s industry- 230 2010 SOURCE: ACCENTURE AND TBR Systemberatung AG specific software offerings. November Strengthens Accenture’s embedded software services Mogensis N/A 2010 capabilities. November Enhances Accenture’s Pegasystems capabilities in key Knowledge Rules, Inc. U.S. and European markets. N/A 2010 Purchased for $51 million, strengthening Accenture’s Ariba’s Sourcing November existing sourcing and procurement consulting and 160 Services & BPO Assets 2010 outsourcing capabilities24 Accenture 4Q10 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc. © 2010 Technology Business Research, Inc.
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