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Item 7. Management’s Discussion and Analysis

2024-10-10 compared with 2023-10-12 · 102 added, 65 removed, 209 unchanged (44% of the section changed)

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Revenues by Segment/Geographic Market

Our three reportable operating segments are our geographic markets, North America, Europe and Growth Markets.

Our three reportable operating segments are our geographic markets, North America, EMEA and Growth Markets.

In addition to reporting revenues by geographic market and industry group, we also report revenues by two types of work:

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Increase (Decrease)

Currency Percent of Total

(in millions of U.S.

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North America (1) $ 30,741 $ 30,296 1 % 2 %

Europe 21,285 20,264 5 11 33 33

EMEA (2) 22,818 22,293 2 —

Growth Markets (1) (2) 11,338 11,524 (2) 7

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Amounts in table may not total due to rounding.

(1) In the first quarter of fiscal 2024, our Middle East and Africa market units will move from Growth Markets to Europe, and the Europe market will be referred to as our Europe, Middle East and Africa (EMEA) geographic market.

(2) Previously referred to as our outsourcing business.

The following revenues commentary discusses local currency revenue changes for fiscal 2023 compared to fiscal 2022:

(1) In the first quarter of fiscal 2025, our Latin America market unit will move from Growth Markets to North America.

With this change, North America will become the Americas market and Growth Markets will become the Asia Pacific market.

(2) During the first quarter of fiscal 2024, we revised the reporting of our geographic markets for the movement of our Middle East and Africa market units from Growth Markets to Europe, and the Europe market became our EMEA (Europe, Middle East and Africa) geographic market.

Prior period amounts have been reclassified to conform with the current period presentation.

Geographic Markets

• North America revenues increased 4% in local currency, led by growth in Public Service for our U.S.

federal business, Health and Utilities.

These increases were partially offset by declines in Communications & Media, High Tech, Banking & Capital Markets and Software & Platforms.

The following revenues commentary discusses the primary drivers of local currency revenue changes by geographic market for fiscal 2024 compared to fiscal 2023:

• North America revenues increased 2% in local currency, led by growth in Public Service and Industrial, partially offset by declines in Banking & Capital Markets, Communications & Media and Software & Platforms.

Revenue growth was driven by the United States.

• Europe revenues increased 11% in local currency, led by growth in Industrial, Banking & Capital Markets and Public Service.

Revenue growth was driven by Germany, Italy and France.

• Growth Markets revenues increased 12% in local currency, led by growth in Chemicals & Natural Resources, Public Service and Banking & Capital Markets.

Revenue growth was driven by Japan.

• EMEA revenues were flat in local currency, as growth in Public Service was offset by declines in Communications & Media and Banking & Capital Markets.

Revenues were driven by an increase in Italy, offset by declines in France and the United Kingdom.

• Growth Markets revenues increased 7% in local currency, led by growth in Banking & Capital Markets, Industrial and Chemicals & Natural Resources.

Revenue growth was driven by Japan and Argentina, partially offset by declines in Australia and Brazil.

Argentina revenues grew in local currency due primarily to hyperinflation.

Operating Expenses

Operating expenses for fiscal 2023 increased $3,075 million, or 6%, over fiscal 2022, and increased as a percentage of revenues to 86.3% compared to 84.8% during this period.

The increase as a percentage of revenues is primarily due to business optimization costs of $1,063 million recorded during fiscal 2023.

Operating expenses for fiscal 2024 decreased $1 million from fiscal 2023, and decreased as a percentage of revenues to 85.2% from 86.3% during this period.

The primary categories of operating expenses include Cost of services, Sales and marketing and General and administrative costs.

Cost of services is primarily driven by the cost of people serving our clients, which consists mainly of compensation, subcontractor and other payroll costs, and non-payroll costs such as facilities, technology and travel.

Cost of services includes a variety of activities such as:

contract delivery;

recruiting and training;

software development;

and integration of acquisitions.

Sales and marketing costs are driven primarily by compensation costs for business development activities;

ACCENTURE 2024 FORM 10-K

Management's Discussion and Analysis of Financial Condition and Results of Operations 43

marketing- and advertising-related activities;

and certain acquisition-related costs.

General and administrative costs primarily include costs for people that are non-client-facing, information systems, office space and certain acquisition-related costs.

Operating expenses by category are as follows:

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Gross margin for fiscal 2024 increased to 32.6% compared to 32.3% in fiscal 2023.

The increase in gross margin for fiscal 2023 was primarily due to lower labor costs, including lower subcontractor costs, partially offset by higher non-payroll costs, primarily for travel compared to fiscal 2022.

The increase in gross margin for fiscal 2024 was primarily due to lower labor costs, partially offset by higher non-payroll costs, primarily for travel compared to fiscal 2023.

Sales and Marketing

Sales and marketing expense for fiscal 2023 increased $474 million, or 8%, over fiscal 2022, and increased as a percentage of revenues to 10.3% over 9.9% during this period due to higher selling and other business development costs as a percentage of revenues.

Sales and marketing expense for fiscal 2024 increased $264 million, or 4%, over fiscal 2023, and increased as a percentage of revenues to 10.6% over 10.3% during this period due to higher selling and other business development costs.

General and Administrative Costs

General and administrative costs for fiscal 2023 increased $50 million, or 1%, over fiscal 2022, and decreased as a percentage of revenues to 6.7% from 6.9% during this period.

General and administrative costs for fiscal 2024 increased $5 million over fiscal 2023, and decreased as a percentage of revenues to 6.6% from 6.7% during this period.

Business Optimization Costs

During fiscal 2023, we recorded business optimization costs of $1,063 million, primarily for employee severance.

During fiscal 2024 and 2023, we recorded business optimization costs of $438 million and $1,063 million, respectively, primarily for employee severance.

These business optimization initiatives were completed as of August 31, 2024.

For additional information, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Non-GAAP Financial Measures

We have presented operating income, operating margin, effective tax rate and diluted earnings per share on a non-GAAP or “adjusted” basis excluding the business optimization costs recorded in fiscal 2024 and fiscal 2023, and, with respect to effective tax rate and diluted earnings per share, the impact of an investment gain recorded in fiscal 2023, as we believe doing so facilitates understanding as to the impact of these items and our performance in comparison to the prior periods.

While we believe that this non-GAAP financial information is useful in evaluating our operations, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.

ACCENTURE 2024 FORM 10-K

Management's Discussion and Analysis of Financial Condition and Results of Operations 44

Operating Income and Operating Margin

Operating income for fiscal 2023 decreased $557 million, or 6%, from fiscal 2022.

Operating margin for fiscal 2023 was 13.7%, compared with 15.2% for fiscal 2022.

The business optimization costs reduced operating margin by 170 basis points.

Excluding these costs, operating margin for fiscal 2023 increased 20 basis points to 15.4%.

Operating income and operating margin for each of the geographic markets are as follows:

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North America $ 4,952 16 % $ 4,474 15 % $ 479

Europe 2,333 11 2,437 12 (105)

EMEA (1) 2,804 12 2,483 11 320

Growth Markets (1) 1,840 16 1,853 16 (13)

1 unchanged sentence

Amounts in table may not total due to rounding.

ACCENTURE 2023 FORM 10-K

Management's Discussion and Analysis of Financial Condition and Results of Operations 41

(1) During the first quarter of fiscal 2024, we revised the reporting of our geographic markets for the movement of our Middle East and Africa market units from Growth Markets to Europe, and the Europe market became our EMEA (Europe, Middle East and Africa) geographic market.

Prior period amounts have been reclassified to conform with the current period presentation.

Operating income for fiscal 2024 increased $786 million, or 9%, compared with fiscal 2023.

Operating margin for fiscal 2024 was 14.8%, compared with 13.7% for fiscal 2023.

Geographic Markets

We estimate that the aggregate percentage impact of foreign currency exchange rates on our operating income during fiscal 2024 was similar to that disclosed for revenue for each geographic market.

The commentary below provides insight into other factors affecting geographic market performance and operating income, including the impact of foreign currency exchange rates where significant, for fiscal 2024 compared with fiscal 2023:

• North America operating income increased primarily due to revenue growth, lower business optimization costs and lower labor costs, partially offset by a decline in consulting contract profitability and higher acquisition-related costs.

• EMEA operating income increased primarily due to the positive impact of foreign currency exchange rates which resulted in an increase in U.S.

dollar revenues, lower labor costs and lower business optimization costs, partially offset by declines in consulting revenues in local currency and consulting contract profitability.

• Growth Markets operating income decreased as revenue growth in local currency and lower labor costs were more than offset by lower contract profitability and the negative impact of foreign currency exchange rates which resulted in a decline in U.S.

dollar revenues.

Operating Income and Operating Margin Excluding Business Optimization Costs (Non-GAAP)

The business optimization costs reduced operating margin for fiscal 2024 and 2023 by 70 and 170 basis points, respectively.

Adjusted operating margin for fiscal 2024 increased 10 basis points to 15.5% compared with fiscal 2023.

(in millions of U.S.

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(Non-GAAP) Operating

Income (GAAP) Operating

Margin (GAAP) Increase

Income (GAAP) Business

Optimization (1) Operating

Income (Non-GAAP) Operating

(Non-GAAP) Increase

North America $ 4,952 $ 68 $ 5,021 16 % $ 4,474 $ 465 $ 4,939 16 % $ 82

Europe 2,333 433 2,766 13 2,437 12 328

EMEA (2) 2,804 249 3,052 13 2,483 438 2,922 13 131

Growth Markets (2) 1,840 122 1,961 17 1,853 160 2,013 17 (51)

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(1) Costs recorded in connection with our business optimization initiatives, primarily for employee severance.

We estimate that the aggregate percentage impact of foreign currency exchange rates on our operating income during fiscal 2023 was similar to that disclosed for revenue for each geographic market.

In addition, during fiscal 2023 each geographic market’s operating income was unfavorably impacted by business optimization costs.

• North America operating income decreased as revenue growth was more than offset by higher labor costs, including an increase in selling and other business development costs as a percentage of revenues.

• Europe operating income increased due to revenue growth in local currency, partially offset by the negative impact of foreign currency exchange rates.

• Growth Markets operating income increased primarily due to higher contract profitability and revenue growth in local currency, partially offset by the negative impact of foreign currency exchange rates.

Interest Income

Interest income for fiscal 2023 was $280 million, an increase of $235 million over fiscal 2022.

The increase was primarily due to higher interest rates.

Prior period amounts have been reclassified to conform with the current period presentation.

Other Income (Expense), net

Other income (expense), net primarily consists of foreign currency gains and losses, non-operating components of pension expense, as well as gains and losses associated with our investments.

During fiscal 2023, Other income (expense) increased $169 million over fiscal 2022, primarily due to higher gains on investments, partially offset by foreign currency exchange losses.

For additional information on investments, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Loss on Disposition of Russia Business

We recorded a loss from the disposal of our business in Russia of $96 million during fiscal 2022.

During fiscal 2024, Other income (expense), net decreased $206 million from fiscal 2023, primarily due to lower gains on investments.

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Management's Discussion and Analysis of Financial Condition and Results of Operations 45

Income Tax Expense

The effective tax rate for fiscal 2024 was 23.5%, compared with 23.4% for fiscal 2023.

Absent the business optimization costs of $1,063 million and related reduction in tax expense of $247 million, and the investment gain of $253 million and related tax expense of $9 million, our effective tax rate for fiscal 2023 was 23.9%.The slightly lower effective tax rate for fiscal 2023 was primarily due to lower tax expense from the geographic distribution of earnings, partially offset by lower tax benefits from share-based payments.

For additional information, see Note 11 (Income Taxes) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Income Tax Expense Excluding Business Optimization Costs and Investment Gain (Non-GAAP)

Excluding the business optimization costs of $438 million and related reduction in tax expense of $111 million, our adjusted effective tax rate was 23.6% for fiscal 2024.

Excluding the business optimization costs of $1,063 million and related reduction in tax expense of $247 million, and the investment gain of $253 million and related tax expense of $9 million, our adjusted effective tax rate was 23.9% for fiscal 2023.

Net Income Attributable to Noncontrolling Interests

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Net income attributable to Accenture plc represents the income attributable to the shareholders of Accenture plc.

ACCENTURE 2023 FORM 10-K

Management's Discussion and Analysis of Financial Condition and Results of Operations 42

Earnings Per Share

Diluted earnings per share were $11.44 for fiscal 2024, compared with $10.77 for fiscal 2023.

The $816 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $1.28 and the $244 million investment gain, net of related taxes, increased diluted earnings per share by $0.38 for fiscal 2023.

Excluding these impacts, diluted earnings per share were $11.67 for fiscal 2023.

For information regarding our earnings per share calculations, see Note 3 (Earnings Per Share) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

The increase in diluted earnings per share is due to the following factors:

Earnings Per Share Fiscal 2023

Earnings Per Share Excluding Business Optimization Costs and Investment Gain (Non-GAAP)

The business optimization costs of $327 million, net of related taxes, decreased diluted earnings per share by $0.51 for fiscal 2024.

Adjusted diluted earnings per share were $11.95 for fiscal 2024.

The business optimization costs of $816 million, net of related taxes, decreased diluted earnings per share by $1.28 and the investment gain of $244 million, net of related taxes, increased diluted earnings per share by $0.38 for fiscal 2023.

Adjusted diluted earnings per share were $11.67 for fiscal 2023.

FY24 As Reported $ 11.44

Business optimization costs 0.69

Tax effect of business optimization costs (1) (0.18)

FY24 As Adjusted $ 11.95

FY23 As Reported $ 10.77

Business optimization costs 1.66

Gain on an investment (0.40)

Tax effect of business optimization costs and gain on an investment (1) (0.37)

FY23 As Adjusted $ 11.67

Amounts in table may not total due to rounding.

(1) The income tax effect of business optimization costs and gain on an investment include both the current and deferred income tax impact and was calculated by using the relevant tax rate of the country where the adjustments were recorded.

The increase in adjusted diluted earnings per share is due to the following factors:

FY23 As Adjusted $ 11.67

Higher revenue and operating results 0.19

Higher non-operating income (excluding loss on disposition of Russia business) 0.18

Loss on disposition of Russia business recorded in fiscal 2022 0.15

Lower share count 0.05

Higher effective tax rate (excluding loss on disposition of Russia business) (0.02)

Lower effective tax rate 0.05

Higher non-operating income 0.02

Higher net income attributable to noncontrolling interests (0.03)

FY24 As Adjusted $ 11.95

Gain on an investment, net of tax 0.38

Business optimization costs (1.28)

FY23 As Reported $ 10.77

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Management's Discussion and Analysis of Financial Condition and Results of Operations 46

Our operating income and diluted earnings per share are affected by currency exchange rate fluctuations on revenues and costs.

Most of our costs are incurred in the same currency as the related revenues.

Where practical, we seek to manage foreign currency exposure for costs not incurred in the same currency as the related revenues, such as the costs associated with our global delivery model, by using currency protection provisions in our customer contracts and through our hedging programs.

We seek to manage our costs, taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs.

For more information on our hedging programs, see Foreign Currency Risk under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” and Note 9 (Financial Instruments) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Results of Operations for Fiscal 2023 Compared to Fiscal 2022

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Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations, available cash reserves and debt capacity available under various credit facilities.

Our primary sources of liquidity are cash flows from operations, available cash reserves, debt capacity available under variou s credit facilities and other borrowings.

We could raise additional funds through other public or private debt or equity financings.

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• develop new services and solutions;

• repay outstanding borrowings and other debt.

See Note 10 (Borrowings and Indebtedness) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data” for further information regarding our outstanding borrowings and other debt.

As of August 31, 2024, Cash and cash equivalents were $5.0 billion, compared with $9.0 billion as of August 31, 2023.

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Operating activities:

The $17 million decrease in operating cash flows were primarily due to higher spending on certain compensation payments, partially offset by higher collections on net client balances (receivables from clients, contract assets and deferred revenues).

The $393 million decrease in operating cash flows was primarily due to changes in operating assets and liabilities, including receivables from clients and contract assets, partially offset by higher net income.

Investing activities:

The $1,638 million decrease in cash used was primarily due to lower spending on business acquisitions and higher proceeds from the sale of businesses and investments.

The $4,439 million increase in cash used was primarily due to higher spending on business acquisitions.

For additional information, see Note 6 (Business Combinations and Dispositions) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Financing activities:

The $334 million increase in cash used was primarily due to an increase in cash dividends paid as well as an increase in the net purchase of shares, partially offset by increases in net proceeds from share issuances and net proceeds from borrowings.

The $418 million increase in cash used was due to higher cash dividends paid and net purchases of shares, as well as higher purchases of noncontrolling interests, partially offset by higher net proceeds from borrowings.

For additional information, see Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

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Substantially all of our cash is held in jurisdictions where there are no regulatory restrictions or material tax effects on the free flow of funds.

In addition, domestic cash inflows for our Irish parent, principally dividend distributions from lower-tier subsidiaries, have been sufficient to meet our historic cash requirements, and we expect this to continue into the future.

Domestic cash inflows for our Irish parent, principally dividend distributions from lower-tier subsidiaries, have been sufficient to meet our historic cash requirements, and we expect this to continue into the future.

Share Purchases and Redemptions

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Share repurchases may be made from time to time through open-market purchases, in respect of purchases and redemptions of Accenture Canada Holdings Inc.

exchangeable shares, through the use of Rule 10b5-1 plans and/or by other means.

The repurchase program may be accelerated, suspended, delayed or discontinued at any time, without notice.

For additional information, see Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

exchangeable shares, through the use of Rule 10b5-1 plans and/or by

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Management's Discussion and Analysis of Financial Condition and Results of Operations 48

The repurchase program may be accelerated, suspended, delayed or discontinued at any time, without notice.

For additional information, see Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Subsequent Events

See Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

See Note 10 (Borrowings and Indebtedness) and Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Obligations and Commitments

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For further discussion of these transactions, see Note 15 (Commitments and Contingencies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

New Accounting Pronouncements

See Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

ACCENTURE 2024 FORM 10-K

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis