Accenture Q3-2009, Big Change From Prior Quarter – Investors Love It

In March 2009, Accenture (NYSE: ACN) delivered a shock to investors when it reported revenues and EPS for Q2-2009 under what investors were generally expecting and then dialed down expectations. For Q2-2009, Accenture’s EPS was 63 cents, 1 cent better than consensus expectations of 62 cents, but revenue of $5.27 billion was far less than what Wall Street was expecting at $5.53 billion. At that time, Accenture shares sank $4.60, or 14.4 percent, to $27.36 in morning trading on Friday, March 27, 2009. Management’s Q2-2009 commentary was sobering, and talked about sudden and dramatic shifts in clients and projects.

See our blog post on Q2-2009 earnings: http://bigfouralumni.blogspot.com/2009/03/accenture-indicates-profound-and.html
Things seem to have turned around quite well for the company this quarter Q3-2009. Yesterday Accenture reported EPS of 68 cents, a full 4 cents better than consensus of 64 cents and revenues of $5.15 billion, just shy of analyst consensus expectations of $5.2 billion. Investors were pleased with these results and the stock marched up 5% after hours on Thursday to almost $33 dollars, and staying at $32.79 mid-day Friday June 26, 2009.
Investors seem to be now happy with ACN, and Accenture’s stock has come back smartly to levels in early 2008 recovering much of the double digit% loss in March. The machine rolls on at Accenture, here are some notable factoids:

Q3-2009 cash was $4.0 billion, up from $3.6 billion in Q2-2009
Q3-2009 operating margin improved to 14.2%, new bookings $6.6 billion (consulting $3.2B and outsourcing $3.6B)
Q3-2009 revenues were impacted negatively by 12% from same period as the dollar strengthened substantially in this time
Q3-2009 consulting revenues of $3B decreased 20% in U.S. dollars, but outsourcing revenues of $2.2B decreased only 9%
Q3-2009, Accenture was smart enough to purchase or redeem about 10 million shares for $283 million from a combination of founders and open market purchases, at an average price of just $28.45 per share, that action already producing shareholder value of $450 million.

It is clear that outsourcing is getting ahead of consulting, as clients seek real cost savings and stay away from getting advice.

If we dig through the earnings call transcript, the key seems to lie in CEO Bill Green’s comments below, which is a marked shift from the defensive & inability-to-predict position in the previous quarters’ call. Reading between the lines, Accenture has shifted quickly to match the current external environment, focusing on its top clients, recognizing that the work is out there and executives just have to chase it down despite caution and deliberation at clients.
According to CEO Bill Green, “I think we put a lot of work looking at our diamond clients and looking at the initiatives that they have. We have done a lot of work looking at the leaders of our client companies in terms of the constant of people in the market place and the confidence has improved a lot and yet people are still thoughtful and cautious. I think it is going to be an interesting question about when you cross the line into 2010 calendar what really happens. So the difference between our first two quarters and our last two quarters could be dramatically different. I guess the other thing is there is still a lot of conversation and activity out there. So I think it is working its way through the system and as a result it is sort of hard. You can see the first couple of quarters and say this thing is going to get off to a slower start but it has the potential to ramp because as I said the work hasn’t gone anywhere. The needs are there. The work is there. The people that have the global agendas around consistent operating platforms and performance improvement things are all there. People have been taking small bites and I think somewhere along the line here we are going to get back into the bigger, more transformational type assignments.”
Thanks to http://seekingalpha.com/article/145458-accenture-ltd-f3q09-qtr-end-05-31-09-earnings-call-transcript for transcript details.
And Accenture laid out some forecasts:

Q4-2009 revenues $5-5.2 billion, with (8)% FX impact
2009 full year new bookings $23-25 billion, operating margin 13.4-13.7%, annual effective tax rate 27-29%
2009 full year EPS $2.67 to $2.70, operating cash flow $2.65 to 2.85 billion

And so, as we have said earlier, the machine rolls on, nothing seems to stop the onward push of this extremely well managed company. We have always admired Accenture, and in these worst of times to pull off such a quick turnaround just shows its tremendous global depth and breadth, acumen and competitiveness. Investors saw some of this light yesterday!

High Net Worth Individuals Lose $8 Trillion In Just One Year!

We have blogged in prior years about the Capgemini Merrill Lynch World Wealth Report, since the results are fascinating and the numbers are simply mind-boggling. The 13th annual 2009 report was just released hours ago, and we bring you their (rather sobering) findings and our take.

See our 2006 post - http://bigfouralumni.blogspot.com/2006/07/capgemini-tells-you-more-about-uber.html

See our 2008 post - http://bigfouralumni.blogspot.com/2008/07/10-million-wealthy-folks-own-astounding.html


Simply put, at the end of 2008, global HNWI (High Net Worth Individuals) population dropped 15% from 10 million in 2007 to 8.6 million in 2008 and their wealth dropped 20% or $8 trillion from $41 trillion in 2007 to $32.8 trillion in 2008. As Capgemini says, “The declines were unprecedented, and wiped out two robust years of growth in 2006 and 2007.”

Don’t feel sorry yet for this loss, as the average HNWI still had a nice pot of $3.8 million at the end of 2008 after enduring 16 months of ravaging global stock and real estate bear markets. The bigger story is that 1.5 million folks did drop out of the HNWI population, which means their wealth fell below the threshold of $1 million.

What caused all this drop? Sinking stock markets, especially in emerging markets in late 2007 and much of 2008 led to a lot of wealth destruction, coupled with falling real estate, rising commodity prices, global economic slowdown and general business malaise had their unfortunate effects on the ultra rich. As expected, many of them moved quickly to safety putting their money in cash, short term instrument and T bills to escape further deterioration.

In terms of geography in 2008, North America had 2.7 million HNWIs, 31% of the total, followed by Europe with 2.6 million (30%) and Asia Pacific with 2.4 million had 28% of all the world’s HNWI. The annual % drop in HNWI population was most pronounced in North America with 19% as 600,000 folks dropped below the threshold from 2007 to 2008. In Europe, half a million individuals didn’t make the cut and in Asia Pacific 400,000 had to be content with not calling themselves HNWIs.

The wealth destruction of these 10 million individuals was a staggering $8 trillion from 2007 to 2008 or a loss of about $800,000 per individual. We did some math to try to reconstruct somewhat the underlying numbers behind these results:

The number of global billionaires dropped from 1, 123 in 2007 to 793 in 2008 (according to Fortune magazine), and the total wealth of this jet-set dropped around 40% from $4.8 trillion to $2.8 trillion, and these thousand-or-so folks accounted for a staggering drop of $2 trillion from one year to the next. On a per individual basis, the decrease for this uber-rich billionaires was $2 billion. Those who had the most, appropriately enough, lost the most!

The number of Ultra High Net Worth Individuals (UHNWI – those with assets greater than $30 million) dropped from about 103,000 in 2007 to about 78,000 in 2008, and their net worth dropped (by our estimates) from about $15.6 trillion in 2007 to $12.9 trillion in 2008 or a drop of about $2.7 trillion. On a per individual basis, the decrease for these UHNWIs was $29 million.

For the subset of UHNWI minus the billionaires, the wealth destruction was around $700 million or about $7 million per individual.

Then come the folks don’t belong in these two above exclusive segments - just the run of the mill millionaire - with a net worth between $1 million and $30 million - dropped from 10 million folks to 8.5 million and their net combined worth dropped from $24 trillion in 2007 to $19 trillion in 2008 or a drop of about $5 trillion. On a per individual basis, the decrease for these HNWIs was only $0.6 million.

After you generally get used to the trillions of dollars that are bandied about in this report (but then of course, you need to be talking in trillions to get attention today!), wealth advisors can dig deeper to see how to help these folks manage their riches. Others can simply delight in the miseries of the ultra-riche and be comforted that even they were equally impactd by a global crisis which has not left anyone untouched.

A fascinating read, and you can find it at http://www.capgemini.com/resources/news

Miami Jury Finds BDO International Not Guilty – Huge Implications

We recently blogged on the recent ongoing trial on BDO International vs. Banco Espirito Santo in Miami, Florida with a jury in session to decide on the issue whether BDO Seidman, the US country firm, was an agent of BDO International, and whether the global umbrella firm should hold financial responsibility for the liabilities of the US firm.
(http://bigfouralumni.blogspot.com/2009/05/bdo-seidman-vs-banco-espirito-case.html)

There were two separate charges against BDO Seidman which were upheld in another court, one for compensatory damages of $170 million and the other for punitive damages of $351 million for a total of $521 million. Earlier, Judge John Schlesinger had ruled that the BDO International would not be held responsible for the punitive damages of $351 million, leaving only the $170 million to be decided by the jury.

We just listened to the 10 minute verdict delivered by the foreman of the jury (supplied to us courtesy of http://http://www.courtroomview.com/): BDO International is not responsible for the penalties imposed on BDO Seidman and the US firm was not agent of the global umbrella organization.

And the six member jury did not take long (barely an hour) to return an unanimous verdict. To the singular question, “Was BDO Seidman was an actual agent of the BDO International BV?”, the jury simply said “No”.

A clear win for BDO firms and perhaps an ever greater precedent-setting case with far reaching implications for accounting firms and the accounting industry, and in particular global firms such as the Big4 firms which operate as country partnerships under a global management organization. Clearly a guilty verdict would have created a host of troubles for Big4 firms, as this would have set a precedent in conferring liabilities upwards from child firms into the parent organization. A not-guilty verdict is very supportive but perhaps not entirely ruling out similar verdicts in the future.

BDO Seidman has clearly escaped a difficult situation, and while BDO International’s overall financial position may not be impaired, the US firm still has to come up with hundreds of millions of dollars to fulfill earlier damages. The source of this money is not that obvious, BDO Seidman has already said it will need to cut large number of employees to locate the funds. BDO Seidman is already appealing that earlier $521 million verdict. Meanwhile, the firm seems to be operating as usual.

The other case, which is likely to follow is Satyam Computer in India, along with its auditors, PwC India and then correspondingly PwC International. Under Indian rules, local auditors can be immediately charged with criminal cases, and as it happened two PwC India partners were jailed for conspiring in the Satyam scam. There has been no suit as yet against PwC India or PwC Global (most likely in the works), but surely shareholders or other parties will sue PwC local and international firms for auditing and certifying statements when clearly there was fraud going on at Satyam. There must be an audible sigh of relief at PwC on this verdict, and if there are extraordinary financial damages imposed on the Indian firm, the damage is likely to be localized and not travel up into the global organization and deeper pockets for larger sums of moneys to plaintiffs. Obviously, a guilty verdict in the BDO case would have been devastating precedent on the PwC case but a not-guilty verdict is no guarantee that the international PwC firm is shielded watertight from severe financial damage.

Two big verdicts for the defendant’s lawyer Mark Raymond sets him up far above a dual negative punch for plaintiff’s lawyer Steven Thomas. It is not clear at this time how these two lawyers will be involved in the BDO appeals case.

We hear there is another case looming in Florida with Ernst and Young defending its auditing and consulting at the defunct Superior Bank of Chicago (with key involvement by Hyatt’s Pritzker family), which was taken over by the FDIC in 2001, and that calls into question another prickly issue for Big4 firms, conflict of interest when both consulting and auditing are provided by the same firm (eventually which led to sale of E&Y’s consulting unit to CapGemini, sale of PwC’s consulting unit to IBM and spin-off and bankruptcy of KPMG’s consulting unit – BearingPoint)

We’ll be watching both on BDO’s appeal and the E&Y case as they unfold in the future.

Grant Thornton Survey Indicates Optimism Returns to Pre-Recession Levels

A little under a month ago (May 14, 2009) we blogged about a number independently conducted recent surveys by the Big 4 firms as a gauge for the depth and breadth of the global economic crisis and any nascent signs of its ending.

http://bigfouralumni.blogspot.com/2009/05/big4-firm-surveys-uniformly-indicate.html

At that time, surveys were uniformly negative and echoed much pessimism about current conditions and future prospects. There were only a few glimmers of hope among participants for any chance of near-term recovery.

We have been brought back to this topic again by Grant Thorton’s Business Optimism Index, a confidence measure of U.S. business leaders, which jumped sharply to pre-recession levels and offered a case for much optimism.

The index jumped very sharply from a (historic) low of 35.6 in November 2008 to 54.5 in May 2009 just a tad below 54.7 in November 2007 when the US recession just began.

When asked, “Do you feel the U.S. economy will improve/remain the same/get worse in the next six months?”, 45% of participants said improve, 43% said remain the same. Only 13% said it will get worse, down sharply from 63% in November 2008

When asked, “How optimistic are you about the growth of your own business over the next six months?”, 9% respondents are very optimistic, 53% are somewhat optimistic (up from 37% in November 2008), 38% are somewhat or very pessimistic.

Finally, a very interesting question, “Do you expect the number of people you employ will increase/remain the same/decrease in the next six months?”. And surprisingly, the results were:
Increase: 20%, up from 9% in February 2009
Remain the same: 50%, up from 43% in November 2008
Decrease: 30%, down from 45% in February 2009

Grant Thornton also asked another pointed question, “When do you think the economy will come out of recession?” 15% said second half of 2009, 54% respondents said the first half of 2010, 24% said sometime in the second half of 2010 and 6% said not until 2011.

The full survey is available at http://ow.ly/dlIq

We turned to other Big4 surveys and found some support for this optimism.

In KPMG’s March and April 2009 survey of insurance executives, they report, “
The results show that more than half the respondents expect an improvement in organic growth (55 percent) and expect an improvement in growth by acquisition or take-over (53 percent) during the next 12 months. Respondents are also positive about their business prospects as they relate to premium volume (say 53 percent), expense ratio (say 53 percent) and capital reserves (say 47 percent). They are least positive about their share price, with only 40 percent of respondents expecting to see an improvement in this area.” (http://ow.ly/dlIl)

Deloitte looked at UK hotel performance from January to May 2009, and found that, “Whilst revenue per available room (revPAR) is still negative, the pace of decline is reducing and some markets are actually showing gains on 2008 numbers with strong leisure demand driving up weekend occupancies and revenues. There is also a trend of improving performance in the weekday corporate business market in London.” (http://ow.ly/dlId)


Today, June 10, 2009, PricewaterhouseCoopers’ Private Company Trendsetter Barometer shows, “Efforts to succeed in the current climate include both cost-cutting and revenue generating measures. More private companies are focused on cost reduction than on new revenue generation, even though those companies focused on new revenue generation report much stronger projected revenue growth over the next 12 months than their cost-cutting counterparts (7.4 percent and 0.6 percent, respectively). Those planning a combined approach fell to the middle at 2.3 percent.” (http://ow.ly/dlI7)


On 28 May 2009, The Ernst & Young Mining eye index gained 29% over Q1 2009, supported by steady upward momentum in the prices of some key traded metals, a big change for an index that lost 46% during the previous quarter and 75% over 2008. However, the Mining eye still remains some 71% below its 2008 (and record) high and 26% below its 2004 base level. Further, “ Quarter one showed signs of cautious optimism for AIM’s junior miners with secondary fundraising in the sector totalling £239 m, compared with £147 m in the previous quarter, and £295 m in Q1 of 2008, indicating that funding is available for the right projects. However, the full impact of the global economic slowdown has yet to be realised. AIM’s miners continued to warn of critical working capital constraints and some entered into voluntary administration arrangements or defaulted on credit payments. The number of mining companies delisting also rose to nine this quarter” (http://ow.ly/dlHV)


In our previous blog, we said, “These surveys conducted by reputable organizations surveying different group of business leaders and using different methodologies yet arriving at similar results indicates that uniformly economic sentiment remains very weak among company executives, worries about future growth, continued recession and dull employment prospects seem to predominate. The most recent KPMG survey seems to offer some green shoot of promise and we may begin to look at these surveys from all the Big Four firms as another leading indicator of sentiment and action as the world hopefully pulls itself of this economic mess in the short term to everyone’s great relief.”

And Grant Thornton’s larger scale US surveys, supported by unrelated data points from other Big4 surveys, seems to indicate that optimism to a large measure has returned to the executive mindset and managers seem to be positively oriented towards higher growth and better future prospects. Economists all across the world are saying that the worst seems to be over just about now, (and while not fully loosing our skepticism), we may cautiously join in that refrain.