Friday, 2 October 2009

Accenture signals 2010 a down year

(By Anthony Miller – Friday 2nd October 2009 7:30am). As ever, Accenture’s Q4/FY09 results provide a feast of data giving clues to the health and prospects of the global IT services market. At $5.15b, Q4 revenues were flat sequentially (as reported) but 7% lower yoy at constant currencies (ccy). Under the covers, Consulting revenues (57% of the total) fell 12% yoy (ccy) whereas Outsourcing revenues grew 1%. No surprises there, then.

Accenture did a pretty good job on gross margins, lifting them 60bps to 32.3% “driven primarily by improved outsourcing contract margins”. Either they got better pricing (highly doubtful) or they delivered at lower cost (my bet). Operating margins took a nearly 5 point hit yoy – from 13.1% to 8.2% - absorbing restructuring charges. SG&A rose from 18.6% to 19.1% “primarily due to higher selling costs” – i.e. competition is even tougher so we have to sell harder. Other than Public Sector, where Q4 revenues grew yoy 12% ccy, all of Accenture’s verticals were down: Comms & Hi-Tech, -15% ccy; FS, -10% ccy; Products, -10% ccy; and Resources, -2% ccy. EMEA suffered an 8% ccy decline and now represents 44% of the total.

But the key message in the report was in the business outlook. Management guided an average 5% ccy sequential revenue increase in Q1 (to 30 Nov. ’09), but a likely 1% ccy decline across the FY (to 31st Aug. ’10). To be precise, they gave a range of -3% to +1%. Given that Accenture’s Q1 is almost everybody else’s Q4, the uptick is not surprising. But the implication for the rest of the year is clearly negative. This is completely in line with our oft-stated forecast that there will be no upturn in the software and IT services market until H2 10. Given that Accenture is a Top 10 player in the UK (we reckon they recorded £1.4b revenues here last year), the messages are clear for all the major players: it will be tougher next year; outsourcing is the place to be; and you need low cost delivery to sustain margins. Haven’t we said all this before?

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