Friday, 26 September 2008

UK mars Accenture’s European growth

Accenture had a pretty fine finish to its fiscal year (to 31st August) – indeed a pretty good year all round – despite the turmoil in financial markets and beyond (see the results release here). The notable exception was EMEA region, which saw Q4 revenues grow 6% in local currency against a 10% average across the company. In contrast, Accenture’s North American business grew 14% in the quarter and Asia/Pacific 12% (both local currency).

It was the UK that let the side down. Management didn’t give the numbers but called out both Financial Services and Public Sector as the weak spots. In the rest of Europe, Italy, France and Spain were “very strong” whereas Germany and Nordics were “holding their own”. Management reckoned the problems will take some time to sort out. This bodes ill for Logica in particular, for which Nordics is its largest regional market (28% of revenues) and Public Sector represents 57% of UK revenues, though Financial Services is just 8%. Together, Nordics, Germany and UK comprises 54% of Logica’s total business, so we await with interest CEO Andy Green’s next trading update on 14th November.

Meanwhile, Accenture guided a pretty bullish FY09 outlook, expecting 9-12% local currency growth and 10-40 basis point margin expansion. The latter trick is to be done by “improving contract economics” which we read as higher pricing (they instituted price increases in June) and more offshore delivery. Indeed, global delivery headcount has reached 83,000 of their total 186,000 employees, i.e. 45% of the workforce. We believe about half of these are in India. Management intends to keep headcount relatively flat this year, so with attrition currently at 15% (down from 18% this time last year) they’ll still need to hire some 30,000 people. We would expect most of these will be in low-cost countries.

If Accenture really can grow the 9-12% they are forecasting, this would be a quite astounding performance given our expectations of a shrinking IT services market in ’09 in real terms (low single-digit growth including inflation). They seem to have the combination of consulting and outsourcing services pitched near to perfection and a global delivery model that makes them very competitive even against the Indians. It’s no wonder other players aspire to be just like them when they grow up.

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